Annual Report 2015 ANNUAL REPORT 2015

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2 ANNUAL REPORT 2015 i

3 CONTENTS 1. DIRECTORS REPORT ON GROUP OPERATIONS page Results of operations page Principal factors that have influenced the results for the financial year page Financial position and cash flow page Reconciliation with the Parent Company s financial statements page Sources of funds page Research and innovation page Human resources page Risks and uncertainties page Strengths and resources not reflected in the financial statements page Intercompany and related party transactions page Shareholder structure and corporate governance page Other information page Events after 31 December 2015 page Outlook page CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 page Corporate officers page The Group page CONSOLIDATED FINANCIAL STATEMENTS page NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS page Principal activities page Accounting standards used in preparation of the financial statements page Basis of presentation page Consolidation policies page Critical accounting estimates and judgements page Directors assessment of compliance with going concern requirements page Assets and liabilities held for sale and discontinued operations page Operating segments page Notes to the income statement page Notes to the statement of financial position page Assets page Liabilities and equity page Net funds page Additional disclosures on financial instruments and financial risk management page Litigation and contingencies page Commitments page Third-party assets held by the Group page Related party transactions page Compliance with Legislative Decree 196/2003 page Other information page 80 ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS page 81 PARENT COMPANY S REPORT page DIRECTORS REPORT ON THE PARENT COMPANY S OPERATIONS page Financial review page Sources of funds page Research and innovation page Human resources page Financial risk management page Strengths and resources not reflected in the financial statements page 91 ii

4 5.7 Intercompany and related party transactions page Shareholder structure and corporate governance page Other information page Events after 31 December 2015 page Outlook page Proposed appropriation of profit for the year page Shareholder resolutions page PARENT COMPANY S FINANCIAL STATEMENTS page NOTES TO THE PARENT COMPANY S FINANCIAL STATEMENTS page Corporate information page Accounting standards used in preparation of the financial statements page Basis of presentation page Accounting policies page Critical accounting estimates and judgements page Directors assessment with respect to going concern requirements page Notes to the income statement page Notes to the statement of financial position page Assets page Liabilities and equity page Net funds page Additional disclosures on financial instruments and financial risk management page Litigation and contingencies page Commitments page Compliance with Legislative Decree 196/2003 page Related party transactions page Other information page 138 ANNEXES TO THE PARENT COMPANY S FINANCIAL STATEMENTS page 139 ATTESTATION OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS PURSUANT TO ART. 81-TER OF CONSOB REGULATION NO OF 14 MAY 1999 AND SUBSEQUENT AMENDMENTS AND ADDITIONS page 141 REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE ANNUAL GENERAL MEETING OF SHAREHOLDERS page 144 REPORT OF THE INDEPENDENT AUDITORS page 149 FINANCIAL HIGHLIGHTS OF SUBSIDIARIES page 154 iii

5 DIRECTORS REPORT ON OPERATIONS 1

6 In 2015, the Acotel Group continued to implement its established strategy, focusing on the largescale commercialisation of the Group s Smart Metering and Energy Management services, the consolidation of its existing businesses and the disposal of non-core assets. Acotel has progressively changed its operating model, transforming itself from a company that was primarily a provider of value added services (VAS) to a Group built around three business areas, Interactive, NET and TLC, offering differentiated but complementary services. The launch, in the second half of 2015, of the Group s Energy Meter service for ENI s SOHO and Small Business customers marks the conclusion of the first stage of the strategy pursued by Acotel in recent years, focused on technological innovation and expansion of the commercial offerings of the various Group companies. The innovative smart metering solution provided to ENI enables the energy company to offer its new SOHO and small business customers a product that allows them to make more efficient use of energy. This is a major step forward, which will see one of Italy s leading utilities advise its customers on how to make savings, helping them to be more aware of their energy consumption. The technology developed by Acotel makes it possible to monitor and analyse energy consumption using innovative products with simple and intuitive user interfaces. By taking advantage of its experience in managing technology infrastructure and SIM cards for the telecommunications sector, the NET business area is now able to present its customers with a unique commercial offering for smart metering and energy management. This is based on devices that are easy to install and on the Group s own M2M (Machine-to-Machine) SIM cards that are fully integrated with a highperformance, flexible and continually evolving platform. The migration of Nòverca s retail customers to Telecom Italia SpA was also completed in June, in accordance with the terms of the agreement signed on 9 January This transaction has resulted in recognition of income of approximately 2.9 million from the transfer of around 130 thousand 2

7 customers. It has also enabled the Group to retain the licenses needed in order to continue operating as a Mobile Virtual Network Aggregator ( MVNA ) and ensured that it has access to its own Machine-to-Machine SIM cards, representing a further competitive advantage for the Acotel Net business area. The Group s TLC business is now capable of enabling parties looking to become MVNOs (Mobile Virtual Network Operators), having independently developed : all the necessary network architecture, consisting of complex systems for Billing, CRM (Customer Relationship Management), DWH (Data Warehouse) and HLR (Home Location Register); SIM cards that can be customised either within a smartphone or in other devices developed by the Group for use by its Acotel NET business. The Acotel Interactive business area is responsible for VAS services, offering them not only on behalf of mobile operators, but also making its own apps available via the various market places or marketing them directly via the advertising services provided by the investee, Bucksense Inc.. In this business area, the Group exited the Turkish and Middle Eastern markets in 2015, deeming them not to have attractive revenue potential. This involved the sale of the subsidiaries, Flycell Telekomunikasyon Hizmetler AS and Info2cell.com FZ-LLC. In the same business area, at the end of 2015 the subsidiary, Bucksense Inc., that creates performance-based advertising campaigns, has begun offering advertising services outside the Acotel Group. 3

8 The overall loss reported by the Group, totalling approximately 10.7 million, breaks down as follows: (a) NET business area: (b) INTERACTIVE business area: (c) TLC business area: (d) Taxation and adjustments: (e) Net effect of discontinued operations : Loss for the year: ( 3,052) thousand ( 2,585) thousand ( 1,818) thousand ( 4,331) thousand 1,115 thousand ( 10,671) thousand This shows how the Group continues to experience operational difficulties across all its businesses, connected with the start-up of new activities and deteriorating conditions in our principal geographical markets and sectors of operation. The performance in 2015 has provided proof of how indispensable it is for the Group to take steps to ensure a return to profit, at least over the medium term. Supported by an expert advisor, this has led the Group to draw up a business plan for the period , setting out the actions that need to be taken to restore profitability, progressively reverse the current erosion of capital and cash flow, and relaunch the Group, based around our new, recently created businesses. The above plan describes how a progressive reduction in the turnover generated by our traditional VAS business, operated by Area Interactive, can be offset by expectations of strong revenue and margin growth, over the medium to long term, in the Net business s Energy operations and the Interactive business s Advertising activities. Convinced that the right actions have been taken, the Directors, despite the uncertainty surrounding any future projections, have prepared the consolidated financial statements on a going concern basis. As mentioned above, the disposal of non-core assets during 2015 has had the following impact on the Group: - in March, Acotel Interactive Inc. sold its 100% stake in Flycell Telekomunikasyon Hizmetler AS. In accordance with IFRS 5, a loss of 249 thousand has been recognised at 31 December 2015 to align the value of the net assets sold with the agreed purchase consideration, less directly attributable costs to sell. In application of this standard, cost and revenue items attributable to Flycell Telekomunikasyon Hizmetler AS for 2015 and, for comparative purposes, for 2014 have been classified in Profit/(Loss) from assets held for sale and discontinued operations ; - the impossibility of directly developing the retail business, in part due to the withdrawal of the other founding shareholder, Intesa Sanpaolo, from the project, has led Acotel Group SpA to place Noverca Italia Srl in liquidation, as confirmed by the resolution approved by the Extraordinary General Meeting shareholders held on 26 February 2015 and filed with Rome Companies Register on 1 April 2015; the migration of Nòverca s retail customers to Telecom Italia SpA was also completed in June; at the date of preparation of this annual report, the process of transferring, within the Group, title to the licences and contracts needed to be able to continue operating as an MVNA is in progress. As a result of the above and in accordance with IFRS 5, the assets and liabilities included in the liquidation at 31 December 2015 have been reclassified to Assets and liabilities held for sale and, in the income statement, to Profit/(Loss) from discontinued operations, recognising a net profit of 1,453 thousand; 4

9 - in September, Acotel Group SpA completed the sale of its 100% interest in the Middle Eastern subsidiary, Info2cell, and all its subsidiaries to the Indian company, Altruist Technologies Pvt Ltd. The consideration, which was paid in full, was USD5.5 million ( 4.9 million). In accordance with IFRS 5, a loss of 89 thousand has been recognised at 31 December 2015 to align the value of the net assets sold with the agreed purchase consideration, less directly attributable costs to sell, as described in detail in Note 4.7 to the consolidated financial statements. In application of this standard, cost and revenue items attributable to the Info2cell group for 2015 and, for comparative purposes, for 2014 have been classified in Profit/(Loss) from assets held for sale and discontinued operations. The above transactions have had the following impact on the consolidated financial statements for the year ended 31 December 2015: cost and revenue items for 2015 and, for comparative purposes, for the previous year have been reclassified to Profit/(Loss) from assets held for sale and discontinued operations in the income statement; this line item also includes the costs to sell estimated by the Parent Company; the current and non-current assets attributable to Noverca Italia Srl s remaining operations, which are in the process of being liquidated, have been consolidated on a line-by-line basis, but reclassified to Total assets held for sale and discontinued operations in the statement of financial position; the liabilities attributable to Noverca Italia Srl s remaining operations, which are in the process of being liquidated, have been reclassified to Liabilities directly associated with assets held for sale and discontinued operations in the statement of financial position. All the cash flows attributable to Noverca Italia Srl s remaining operations, which are in the process of being liquidated, for the year ended 31 December 2015 and, for comparative purposes, for the previous year are shown separately in the statement of cash flows. In order to describe the Group s results of operations and analyse its financial position and cash flows, separate reclassified statements have been prepared. These are different from those required by the IFRS-EU accounting standards adopted by the Group and included in the consolidated financial statements. These reclassified statements present the same amounts shown in the consolidated financial statements, to which reference should be made, but contain alternative performance indicators with respect to those derived directly from the consolidated financial statements. Management deems these indicators to be useful in assessing the Group s performance and to present the operating and financial performance of the business. In accordance with CESR Recommendation b, published on 3 November 2005, the criteria used in computing these indicators are described below. 5

10 1.1 RESULTS OF OPERATIONS RECLASSIFIED CONSOLIDATED INCOME STATEMENT (*) ( 000) Increase/ (Decrease) Revenue 37,096 43,737 (6,641) Other income (38) Total revenue 37,298 43,977 (6,679) Gross operating profit/(loss) (8,632) (6,648) (1,984) Amortisation and depreciation (1,626) (2,495) 869 Impairment losses/reversal of impairment losses on non-current assets (284) (4) (280) Operating profit/(loss) (10,542) (9,147) (1,395) Net finance income/(costs) PROFIT/(LOSS) BEFORE TAX (9,940) (8,775) (1,165) Taxation (1,846) (1,037) (809) PROFIT/(LOSS) FROM CONTINUING OPERATIONS (11,786) (9,812) (1,974) Profit/(Loss) from assets held for sale and discontinued operations 1,115 (9,612) 10,727 PROFIT/(LOSS) BEFORE NON- CONTROLLING INTERESTS (10,671) (19,424) 8,753 Profit/(Loss) attributable to non-controlling interests - (77) 77 PROFIT/(LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT (10,671) (19,347) 8,676 Earnings per share (2.59) (4.70) Diluted earnings per share (2.59) (4.70) (*): As required by IFRS 5, amounts for 2014 have been reclassified. Compared with the results for the previous year, the Acotel Group s results for the year ended 31 December 2015 reveal a reduction in revenue and a deterioration in earnings from continuing operations. Revenue Revenue of 37,096 thousand is down 15% on the figure for the previous year. This reduction, if analysed by operating segment, breaks down as follows: 6

11 Turnover by operating segment ( 000) 2015 % 2014 % ACOTEL INTERACTIVE 33, % 41, % ACOTEL NET 1, % 1, % ACOTEL TLC 1, % 1, % Total 37, % 43, % The reduction in revenue during the period essentially reflects the downturn in turnover at the Acotel Interactive business area, primarily due to a slowdown in its Italian and South American markets, essentially reflecting technical and commercial issues, which have resulted in falling turnover, and regulatory interventions that have altered the way in which the sector operates. The following table provides an analysis of the Group s sales in the various geographical segments, regardless of the nature of the goods and services sold: Turnover by geographical segment ( 000) 2015 % 2014 % Latin America 18, % 25, % Italy 12, % 15, % India 5, % 1, % Other European countries % 1, % Other % 37, % 43, % Earnings In terms of EBITDA, the following factors weighed heavily on the Group s overall performance in 2015: - the losses registered by the Acotel NET business area, which is still in the process of launching its products and services on a large scale; - the increased losses incurred by the Acotel Interactive business area, essentially reflecting reduced turnover in Italy and South America; the losses registered by the Acotel TLC business area, in which the Group, following the sale of Nòverca s retail business, has focused its commercial efforts on its MVNA activities, seeking to take advantage of our investment, over the last few years, in development of a platform and of innovative technological solutions, currently offered to parties looking to operate in Italy as MVNOs. The following table shows the Group s EBITDA for 2015 and 2014 by operating segment: 7

12 EBITDA by operating segment ( 000) ACOTEL NET ACOTEL INTERACTIVE ACOTEL TLC Eliminations / Other Total 2015 (2,848) (2,335) (456) (2,993) (8,632) 2014 (1,881) (654) (764) (3,349) (6,648) EBITDA corresponds to operating profit or loss before provisions and releases of provisions, depreciation and amortisation, impairment losses and reversals of impairment losses on assets. EBITDA so defined is a measure used by management to monitor and assess the Company s operating performance and is not an accounting measure envisaged by IFRS. It should not, therefore, be considered an alternative measure of the Group s operating performance. Given that the composition of EBITDA is not governed by the relevant accounting standards, the measurement criteria applied by the Group may not be consistent with those adopted by other companies and may, therefore, not be comparable. 1.2 PRINCIPAL FACTORS THAT HAVE INFLUENCED THE GROUP S RESULTS FOR THE FINANCIAL YEAR This section describes the principal factors that have influenced the results in each of the Group s operating segments during the period. ACOTEL INTERACTIVE The Acotel Interactive business includes the services provided directly to consumers (Digital Entertainment), and those supplied to telephone companies and commercial companies (Mobile Services). It has the primary purpose of supplying value added content and services over mobile phones and the web, or the provision of advertising services supplied directly or indirectly by the subsidiary, Bucksense Inc.. Management of the Acotel Interactive business is the responsibility of the New York based company with the same name, Acotel Interactive Inc., which, in addition to directly controlling various companies in Italy, Brazil, Argentina, the USA and India, oversees the operations of Acotel SpA (Italy), Acotel do Brasil Ltda (Brazil) and Bucksense Inc. (USA). As shown in the following table, revenue generated by the Acotel Interactive business have fallen from the 41 million of 2014 to 33 million in the year just ended, marking a decline of 19%. This primarily reflects reduced turnover in Italy and Latin America. 8

13 ( 000) 2015 % 2014 % Digital Entertainment 27, % 33, % Mobile Services 5, % 8, % Interactive Advertising % - - Total 33, % 41, % Digital Entertainment services include mobile entertainment, casual gaming, social dating and games of skill offerings marketed under consumer brands, such as SkillDerby for smartphone games, SkillSweet for web games, Yabox for casual gaming on PC, Flycell for the download of content, and SurveyLotto, GiocaNews and Palpitamos for prize competitions. During the year just ended, the Group, through its subsidiary, Acotel Interactive India Private Limited, increased its turnover in India from the provision of the latest in Digital Entertainment services. At 31 December 2015, the Indian market, which the Group entered during the previous year, accounts for around 21% of total revenue from Digital Entertainment services. Mobile Services consist of solutions and products offered to mobile operators in the Middle East, Brazil and Italy. In Brazil, Acotel do Brasil Ltda continued to provide its services to TIM Celular, its main customer. In Italy, Acotel SpA proceeded to provide its long-standing ScripTIM services in partnership with Telecom Italia SpA. Through the activities conducted directly and indirectly by the subsidiary, Bucksense Inc., Acotel has begun to make the experience acquired over recent years, in providing support to Group companies as an advertising agency, available to third-party customers. The resulting Interactive Advertising segment generated revenue of 240 thousand in In February 2015, Acotel SpA and Flycell Italia Srl extended their agreement with Telecom Italia SpA until 31 December This covers the provision of services using Decade 4 premium-rate numbers assigned to Telecom Italia SpA and aimed at customers of TIM and those of other mobile operators. In the same month, Acotel SpA extended its agreement with Telecom Italia SpA covering the supply of ScripTIM branded services through to 31 December ACOTEL NET The Acotel Net business reports revenue of 1.9 million, as detailed in the following table: 9

14 ( 000) 2015 % 2014 % Security Systems % 1, % Energy % % Total 1, % 1, % The Security Systems segment generated revenue of 994 thousand in This revenue is generated entirely in Italy from the design, production and maintenance of electronic security systems by the subsidiary, AEM Acotel Engineering and Manufacturing SpA. The subsidiary generates revenue from the installation, supply, servicing and maintenance of remote surveillance equipment primarily installed at certain provincial branches of the Bank of Italy, at Italian police headquarters and at a number of companies in the ACEA Group. The Energy segment generated revenue of 943 thousand in the third quarter, generated primarily by the Group s contracts with Poste Italiane SpA, relating to energy management at post offices, and ENI, in relation to its myenergy service. In the Energy segment, work continued on the development of products and services for managing the consumption of energy, water and gas, developed entirely in-house and marketed under the Acotel Net brand. 10

15 During 2015, in addition to consolidating the commercial relations launched in 2014, the Group successfully concluded talks with a number of major commercial partners, resulting in the largescale launch of energy management services towards the end of In 2015, Acotel almost completed activation of the devices installed at around 8,500 of Poste Italiane s offices, a process that began in the previous year. The use of Acotel Net s solution in Poste Italiane s offices is proving a success, as the devices not only enable the customer to make significant energy savings, but also enable it to identify the numerous outages that occur in real time. The new system enables the problems, caused by interruptions to electricity supply or malfunctioning automatic switch-off devices, to be rapidly dealt with and normal service restored to the premises concerned. At the end of June, ENI began promoting and marketing its myenergy energy management solution, offering it, in partnership with Acotel, to its new SOHO and small business customers. ENI s offering consists of the device designed, developed and produced entirely by Acotel, called the My Energy Meter (MEM), and the related service, which can be accessed via the platform made available by Acotel for ENI s customers via the web (from a PC or tablet) or via an Android or ios smartphone app. The MyEnergy service involves: - the gathering of electricity consumption data via the MEM; - processing of the data gathered; - presentation of the processed data on the platform; - real-time notification in the event of unusual consumption via , pop-up web or push app. At 31 December 2015, approximately 3,700 of ENI s customers had chosen the service, with approximately 1,000 having received the MEM from Acotel. The average time between signature of the contract between ENI and its new customers and Acotel s receipt of ENI s go-ahead for shipment of the MEM is around 2 months, in line with the timing established by the regulator for customers switching electricity supplier. In June, Acotel signed a partnership agreement with Bartucci SpA, one of the most respected and established names in the Italian energy efficiency market, accredited as an E.S.Co. (Energy Service Company) by the country s energy market regulator. From the second half of October, the 11

16 agreement resulted in the offer of energy diagnostics in compliance with the requirements and obligations contained in Legislative Decree 102/2014. This legislation has introduced a series of measures designed to improve energy efficiency and imposed an obligation on large companies and businesses with high levels of energy consumption to conduct energy diagnoses at their production plants. These services are provided thanks to software designed and produced by Acotel, called ETA (Energy Tracking and Audit), which creates a report enabling the energy diagnosis to be carried out. In July, GEOX SpA requested provision of the Energy Management service for some of its retail outlets. In September, an agreement was signed with Piaggio & C. SpA for the supply of devices to be used in the provision of smart metering and energy management services, involving the monitoring of electricity, gas, compressed air and hot water consumption at the customer s Pontedera manufacturing plant. For the third year running, Acotel took part in the Smart Energy Expo held at the Verona Exhibition Centre in October, presenting its areader, the new sensor for obtaining readings for electricity, water and gas consumption from older-generation drum-type meters that cannot transmit the information stored on them. Finally, in December, testing of the IT portal, created by Acotel for ENEA, was completed. The portal is designed to download diagnosis documents from participating companies and store them in a database for analysis by ENEA using its automated data analysis tools. ACOTEL TLC On 7 May 2015, the MVNO, Nòverca, ceased to provide mobile communications services. Under the agreement signed by Noverca Italia Srl and Telecom Italia SpA on 9 January 2015, approximately 80% of Nòverca s customers have switched to the latter, generating income of approximately 2.9 million for the Group. The review of the results registered by the Acotel TLC business area in 2015 thus refers to the following segments, in which the business area operates: Mobile Virtual Network Aggregator (MVNA) - services supplied to Mobile Virtual Network Operators (MVNOs) by Noverca Srl. Mobile Communications - SMS information services for corporate customers provided by Acotel SpA and Acotel do Brasil. 12

17 Overall, the business area registered a 74% increase in revenue from 1,104 thousand in 2014 to 1,919 thousand in 2015, as the following table shows: ( 000) 2015 % 2014 % Mobile Virtual Network Aggregator services 1, % % Mobile Communications % % Total 1, % 1, % In the Mobile Virtual Network Aggregator segment, where the Group is engaged in enabling parties interested in becoming Mobile Virtual Network Operators, revenue amounted to 1,341 thousand. During the year, the Group continued with its commercial strategy designed to acquire new customers, in addition to proceeding to enable existing customers and providing services to previously enabled MVNOs. A new contract was entered into with the customer, Noitel Italia Srl, in June. This will allow the latter to evolve from being an Air Time Reseller to operating as a Mobile Virtual Network Operator. Between July and October, three new contracts were signed with New Soccer, Digitel Italia and Nextus Telecom, increasing the number of Mobile Virtual Network Operators to which Noverca will offer its MVNA services in the telecommunications market from In December 2015, the Group amended the Mobile Virtual Network Aggregator contract entered with Telecom Italia SpA in June This will enable the Group, from 1 January 2016, to have access to the network owned by this mobile network operator on improved terms. Mobile Communications revenues for 2015 were almost entirely generated in Italy by the subsidiary, Acotel SpA, from the messaging services provided to large organisations. The type of organisations making most use of these services were banks (the biggest customer in Italy is the Unicredit banking group), which use so-called SMS alerts to keep their customers informed in real time about, for example, movements on their current accounts and credit card transactions. 13

18 1.3 FINANCIAL POSITION RECLASSIFIED CONSOLIDATED STATEMENT OF FINANCIAL POSITION ( 000) 31 December December 2014 Increase/ (Decrease) Non-current assets: Property, plant and equipment 5,281 7,881 (2,600) Intangible assets 2,027 3,759 (1,732) Other assets 2,590 4,198 (1,608) TOTAL NON-CURRENT ASSETS 9,898 15,838 (5,940) Net current assets: Inventories Trade receivables 5,554 19,278 (13,724) Other current assets 2,036 3,091 (1,055) Trade payables (6,778) (24,767) 17,989 Other current liabilites (4,120) (5,459) 1,339 TOTAL NET CURRENT ASSETS (2,723) (7,415) 4,692 TOTAL ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS LESS RELATED LIABILITIES (807) - (807) PROVISIONS FOR STAFF TERMINATION AND OTHER EMPLOYEE BENEFITS (3,321) (3,665) 344 NON-CURRENT PROVISIONS (240) (519) 279 NET INVESTED CAPITAL 2,807 4,239 (1,432) Equity: Share capital 1,084 1,084 - Reserves and retained earnings/(accumulated losses) 24,000 45,396 (21,396) Profit/(Loss) for the year (10,671) (19,347) 8,676 Non-controlling interests (140) TOTAL EQUITY 14,443 27,303 (12,860) Net cash and cash equivalents: Current financial assets (11,034) (17,063) 6,029 Cash and cash equivalents (6,172) (11,548) 5,376 Cash and cash equivalents held for sale and included in discontinued operations (395) - (395) Current financial liabilities held for sale and included in discontinued operations 5,965 5, (11,636) (23,064) 11,428 NET FUNDS (11,636) (23,064) 11,428 TOTAL EQUITY AND NET FUNDS 2,807 4,239 (1,432) The Acotel Group s net invested capital at 31 December 2015 amounts to - 2,807 thousand, consisting of non-current assets of 9,898 thousand, net current liabilities of 2,723 thousand, assets 14

19 and liabilities held for sale and related to discontinued operations, amounting to net liabilities of 807 thousand, provisions for staff termination benefits of 3,321 thousand and other non-current provisions of 240 thousand. Net invested capital is financed by consolidated equity of 14,443 thousand and net funds of 11,636 thousand. A detailed analysis of changes in the principal components of the financial position shows that: the value of non-current assets has decreased, essentially due to the sale of Info2cell which, at 31 December 2014, presented goodwill of 2.6 million and other non-current assets of 0.4 million, in addition to the depreciation of the real versus the euro, which has affected the value of the assets of the Group s Brazilian companies; the changes in net current liabilities are also primarily connected to the sale of Info2cell, in addition to being linked to the Acotel Group s performance; that net funds of 11.6 million at 31 December 2015 are down 50% on the figure for 31 December 2014, reflecting the financial impact on the Group of the losses incurred by Group companies during the period. 1.4 RECONCILIATION WITH THE PARENT COMPANY S FINANCIAL STATEMENTS Pursuant to CONSOB Resolution DEM/ of 28 July 2006, the reconciliation between the net result and equity of Acotel Group SpA and the corresponding consolidated items is as follows: ( 000) Result for 2015 profit / (loss) Equity at 31 December 2015 positive/(negative) Equity and profit/(loss) reported in Parent Company's financial statements (13,779) 25,077 Effect of consolidation of Group companies 2,250 (698) Effect of sale of Jinny Software Ltd - (3,589) Effect of sale of Info2cell.com FZ-LLC Accumulated amortisation and accumulated goodwill impairments - (169) Consolidation reserve Cash flow hedge and currency translation reserve - (7,125) Equity and profit/(loss) for the year attributable to owners of the Parent (10,671) 14,413 Equity and profit/(loss) for the year attributable to non-controlling interests - 30 Equity and profit/(loss) reported in consolidated financial statements (10,671) 14, SOURCES OF FUNDS At the end of 2015, the Group reports net funds receivable from others of 11,636 thousand. The Group makes limited use of external sources of funding, being able to meet its cash requirements from its own funds. 15

20 Current financial assets not used to finance operations are invested in low-risk financial instruments. 1.6 RESEARCH AND INNOVATION Since the outset, the Group s research and innovation activities have focused on the development of new products and services, and the platforms used directly in the supply of its services. Development of the telecommunications platform needed by Noverca Srl in order to provide its MVNA services to customers outside the Group continued in In this regard, network services (voice/data/text) have been further developed, as have end-user management services (provisioning, activation, deactivation, query management, customer records), the customisation of price plans and promotions and IVRs (Interactive Voice Responses) via web interfaces, and internal and external MNP (Mobile Number Portability) processes. The Group also continued to develop technologies to be used in the provision of energy control services. Work on developing technologies to be used in the supply of Energy Management and Smart Metering services proceeded. These activities regarded both the development of new peripherals for installation on customers premises and the addition of new functions to the service platform. In terms of peripherals, firmware was developed for three products. The first is the MEM (My Energy Meter): the capabilities of this product have been significantly extended, based on feedback from customers using the device. The main areas of development regard: - the capacity to handle and gather readings from 2 inputs simultaneously; - the capacity to produce an indirect measurement of usage starting from direct measurements of consumption; - extension of diagnostic capabilities and the use of optical indicators (colour-coded LEDs) to help during installation and setup; - development of a new system, based on the http protocol, for remoted updating of the firmware via an OTA (or via transmission over the mobile network). With regard to the second product, attention focused on development of the so-called areader: this is a sensor, equipped with a flashing LED indicator and an optical reader, used to obtain readings from older-generation drum-type meters (numbered wheels showing the reading). The device enables readings to be taken in automated form even from meters originally designed to be read by a meter reader. The areader device sends out an electrical impulse, connected to the MEM product in order to automatically send the readings taken to the cloud services. The third product is the MAU (Management & Automation Unit). The software for this advanced gateway has been completely renewed, with the addition of many new capabilities enabling it to interact with and support additional peripherals. With regard to the platform software, one of the principal developments relates to the ability to provide a series of different online services, whilst retaining a single back-end server and one 16

21 customer database. The new architecture was rendered operational with the release of My Energy Meter, the second service following on from the Energy Management service. New Energy Management functions have been added based on customer feedback, above all with regard to the capabilities of the virtual meters. This software gathers readings from gateways and third-party devices. The strategic importance of this development is significant, as it will enable the service to be opened up to devices produced by third parties and not equipped with Acotel s systems. In practice, this enables us to expand the number of potential subscribers to the Energy Management service, including potential customers in the Italian market, but even more importantly potential new customers in overseas markets. The functions relating to the management of partners are also significant, enabling us to customise certain aspects of the interface graphics: in this way, the services can be offered to customers such as utilities, who then in turn offer Acotel s services to their customers. The new ETA (Energy Tracking and Audit) services was also developed and released, enabling businesses to conduct energy diagnostics. The ETA service automatically produces a diagnostic report with a series of key performance indicators, including potential efficiency improvements. This is an important cloud-based service designed to support activities, such as energy diagnostics, that are due to play an increasingly commonplace role in the ordinary operations of large and medium-sized companies, partly in view of the obligations imposed on these companies by Legislative Decree 102/2014. The My Gas Meter service was developed in the second half of This gathers gas meter readings and provides customers with graphs, trends and an analysis of their consumption. This service is expected to be launched in Finally, a number of software and web developments were completed during the year, enabling Bucksense to make the experience acquired over recent years, in providing support to Group companies, available to third-party customers. 1.7 HUMAN RESOURCES At 31 December 2015, the Group employs 213 people, compared with 237 at the end of The Group recruited 16 new staff during the year, whilst 40 people left its employ. The Group sold its interests in the subsidiaries, Flycell Telekomunikasyon Hizmetler AS and Info2cell.com FZ-LLC, in As a result, to provide a like-for-like basis for comparison, figures for the Group s workforce at 31 December 2014 do not include the employees of these investees. For the sake of completeness, the total workforce employed by Flycell Telekomunikasyon Hizmetler AS and Info2cell.com FZ-LLC at 31 December 2014 amounted to 61. The following tables show key information about the Group s staff at 31 December 2015: 17

22 Staff by category at 31 December 2015 Category Number % Managers 14 7% Supervisors 43 20% White- and blue-collar staff % Total % Staff by geographical area at 31 December 2015 Geographical area Number % Europe % South America 41 19% North America 22 10% Asia 3 2% Total % Staff by gender at 31 December 2015 Gender Number % Male % Female 62 29% Total % Staff by age range at 31 December 2015 Age range Number % under % % % % older 11 5% Total % Staff by length of service at 31 December 2015 Seniority Number % % % % over 58 27% Total % Staff by qualification 31 December 2015 Qualification Number % Degree % High-school diploma % Total % 18

23 1.8 RISKS AND UNCERTAINTIES Credit risk 54.7% of total trade receivables relates to amounts due from the following telephone companies: Telecom Italia (20.6%), TIM Celular SA (10.5%), Bharti (9%), Vodafone (7.2%), Claro Perù (4.1%) and Idea Cellular India (3.3%). At the date of the Board of Directors meeting, around 35% of these receivables, amounting to approximately 1.1 million, have yet to be collected. Group companies are not involved in significant disputes with their debtors. Liquidity risk The Group makes limited recourse to external sources of funding, being able to meet its cash requirements from its own funds. The cash flows, borrowing requirements and liquidity of Group companies are monitored and managed centrally by the Parent Company, with the aim of ensuring effective and efficient management of the Group s financial resources. To this end, the Group has prepared a financial plan designed to ensure a return to financial stability in the medium to long term, which is closely linked to general market conditions and, above all, to the Group s ability to achieve the targets set out in the plan. Further information is provided in section 4.6. Foreign exchange risk The Group is not exposed to any significant extent to foreign exchange risk, which is mainly limited to the partial difference between the currencies in which receivables and payables are denominated, above all in the case of Acotel Interactive Inc., although the risks are in any event limited by the short space of time between the issue of invoices and collection of the amount due. Interest rate risk In view of the fact that the Group makes little use of external sources of funding, its exposure to interest rate risk is limited. Operational risks and uncertainties In addition to the uncertainties linked to the overall macroeconomic environment and growing competition in the markets in which the Group operates, it should be noted that the Acotel Interactive division, and above all the Digital Entertainment (consumer) segment, is subject to numerous data and consumer protection regulations. Whilst Group companies operate within these regulations, given the high numbers of customers served, it is not possible to exclude the risk of litigation involving both individuals and groups of customers. Moreover, as readers will be aware, the above regulations are subject to constant changes that may result in significant restrictions on the marketing and commercial activities carried out in order to support the sale of services. 19

24 The Group s investment in development of the platforms owned by Noverca Srl, the company that currently operates as a Mobile Virtual Network Aggregator (MVNA) for customers outside the Group, will face a key test in the near future, when the companies that the Group has enabled and is to enable to operate as Mobile Virtual Network Operators (MVNOs) become fully operational in mobile telecommunications market. The validity of the Group s investment, in both financial terms and in terms of the number of staff employed in the in-house development of Acotel Net s innovative products and services for managing energy, water and gas consumption, and in support for their commercialisation, will be tested as the Group endeavours to achieve a significant increase in its business customers. Although all the companies in the Group operate in highly competitive markets, the Group believes it has the technological and commercial expertise and financial strength necessary to compete successfully. 1.9 STRENGTHS AND RESOURCES NOT REFLECTED IN THE FINANCIAL STATEMENTS This section provides a brief summary of the strengths that the Acotel Group considers it has and that are not sufficiently evident from the data in the financial statements. Technological independence: Since its foundation, the Group has pursued a strategy based on technological independence, developing the technology platforms it uses in house. This strategy gives the Group clear competitive advantages in terms of both operational autonomy and financial benefits, thanks to the possibility to adapt or replicate its platforms in new markets without having to pay royalties to third parties. Stable shareholder structure: 57.4% of the share capital of Acotel Group SpA is held by the founder, Claudio Carnevale, and members of his family. This concentration of ownership ensures continuity in the management of the Group. Financial independence: as previously indicated, the Acotel Group, both through its operating activities and shrewd management of its financial resources, has the necessary financial resources to finance its development without having to make other than limited recourse to bank borrowings. Geographical diversification: the results for 2015 show that 50.7% of the Acotel Group s total turnover was generated in Latin America, 32.4% in Italy, 15.7% in India and the remainder in other European countries. This distribution is the result of the Group s strategy of diversifying into various geographical areas, with a view to minimising the impact of any local difficulties INTERCOMPANY AND RELATED PARTY TRANSACTIONS There are no related party transactions, including intercompany transactions, that may be categorised as atypical or unusual, given that any such transactions form part of the normal activities of Group companies. These transactions are conducted on an arm s length basis, taking account of the type of goods and services exchanged. 20

25 Disclosures regarding related party transactions are provided in section 4.16 of the notes to the consolidated financial statements. The Parent Company and its Italian subsidiaries participate in a tax consolidation arrangement, with the exception of Noverca Italia Srl (in liquidation). A specific procedure governing related party transactions was introduced with effect from 1 January 2011 and is described in the annual Corporate Governance Report, available on Acotel Group SpA s website OWNERSHIP STRUCTURES AND CORPORATE GOVERNANCE Disclosures on the ownership structures required by art. 123-bis of the Consolidated Finance Act are contained in a specific section of the Corporate Governance Report, which the Parent Company makes available in the Investor relations section of its corporate website, OTHER INFORMATION No transactions took place between the parent, Clama Srl, Acotel Group SpA and other Group companies during the period. At 31 December 2015, the Company holds 56,425 treasury shares, which are accounted for as an 871 thousand reduction in equity, representing the average cost of per share and a total par value of 14,671. Acotel Group SpA does not possess shares or units issued by its parent, either directly or through fiduciary companies or proxies, nor has it acquired or sold such shares or units during the period. Other Group companies do not possess Acotel Group SpA shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold such shares during the period. At 31 December 2015, Acotel Group SpA has not established any branch offices. The Parent Company and its Italian subsidiaries have complied with the provisions of Legislative Decree 196/2003 regarding Data Protection, and have prepared and updated the Data Protection Planning Document EVENTS AFTER 31 DECEMBER 2015 Bucksense presented its Interactive Advertising services at the Affiliate Summit West in Las Vegas in January 2016 and at the Mobile World Congress in Barcelona in February. A significant number of contacts resulted from the work carried out at the two fairs and, at the date of preparation of the financial statements, around a hundred of the contacts have been converted into customers who are already using the services offered by the Group. 21

26 The agenda for the Board of Directors meeting to approve Acotel Group SpA s financial statements for the year ended 31 December 2015 also calls on the Directors to deliberate on the merger of the subsidiary, Acotel SpA, with and into Acotel Group SpA. This transaction aims to simplify operating relations between the two companies, given that, in conducting its business, the latter uses the platform developed and operated by the former. The merger will also bring savings, in terms of both human and financial resources, and result in the need to prepare just one set of financial statements OUTLOOK In the Acotel Interactive business area, we expect to see further growth in the customer base in India, a country to which the Group attributes significant revenue potential. In the same business area, Bucksense Inc. will take part in further trade fairs (the next will be the Affiliate Summit East in New York in August 2016) to publicise its Interactive Advertising services, acquire new customers and boost the monthly spending of existing customers. In addition to continuing with the development of products and services for managing the consumption of electricity, water and gas, the Acotel Net business area will work on concluding ongoing talks with a number of major commercial partners. Following the sale of Nòverca s retail business, the Group s Acotel TLC business area can focus its commercial efforts on its MVNA services, taking advantage of investment, over the last few years, in development of a platform and of innovative technological solutions, capable of enabling interested parties to operate in Italy as MVNOs. 22

27 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 Acotel Group SpA Registered office at Via della Valle dei Fontanili 29/ Rome, Italy Share capital: 1,084,200.00, fully paid-in Rome Companies Register, Tax code and VAT number:

28 2.1 CORPORATE OFFICERS BOARD OF DIRECTORS Claudio Carnevale Chairman and CEO Francesco Ago (1), (2), (3) Director Margherita Argenziano Director Rubens Esposito (1), (2) Director Giovanni Galoppi Director (1) Member of the Remuneration Committee (2) Member of the Internal Audit Committee (3) Lead Independent Director BOARD OF STATUTORY AUDITORS Sandro Lucidi Chairman Antonio Mastrangelo Auditor Monica Rispoli Auditor INDEPENDENT AUDITORS Reconta Ernst & Young SpA 24

29 The Board of Directors and the Board of Statutory Auditors of Acotel Group SpA were elected on 24 April 2015 by the Annual General Meeting of shareholders, which also elected Claudio Carnevale as Chairman. Both boards will remain in office until approval of the financial statements for the year ended 31 December The Board of Directors meeting of 15 May 2015 elected: - Claudio Carnevale as the Company s CEO, granting him the powers necessary to ensure effective and timely management of the Company; - Francesco Ago as Lead Independent Director; - Francesco Ago and Professor Rubens Esposito to serve as members of the Remuneration Committee and the Internal Audit Committee. Francesco Ago was appointed Chairman of the Remuneration Committee, whilst Professor Esposito was appointed Chairman of the Internal Audit Committee; - Giovanni Galoppi as the Director with responsibility for the internal control system; - Davide Carnevale as Head of Investor Relations, and assigned the Director, Margherita Argenziano, executive powers in line with her role within the Company. 25

30 2.2 THE GROUP The parent company of Acotel Group SpA is Clama Srl, which at 31 December 2015 holds 1,727,915 ordinary shares, representing 41.4% of the share capital. Clama Srl does not carry out management and coordination activities pursuant to art of the Italian Civil Code, as, despite holding sufficient voting rights to submit the majority list for election of the Board of Directors, Acotel Group SpA s Board of Directors is operationally independent. 26

31 CONSOLIDATED FINANCIAL STATEMENTS 27

32 CONSOLIDATED INCOME STATEMENT (*) ( 000) Note Revenue 1 37,096 43,737 Other income Total 37,298 43,977 Change in work in progress, semi-finished and finished goods Raw materials, semi-finished and finished goods 2 (404) (458) External services 3 (31,552) (35,413) Rentals and leases 4 (1,163) (1,184) Staff costs 5 (12,875) (12,941) Amortisation and depreciation 6 (1,626) (2,495) Capitalised internal costs 7 1, Impairment losses/reversal of impairment losses on non-current assets 12 (284) (4) Other costs 8 (1,480) (1,263) OPERATING PROFIT/(LOSS) (EBIT) (10,542) (9,147) Finance income 9 1,387 1,078 Finance costs 9 (785) (706) PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS (9,940) (8,775) Taxation 10 (1,846) (1,037) PROFIT/(LOSS) FROM CONTINUING OPERATIONS (11,786) (9,812) Profit/(Loss) from assets held for sale and discontinued operations (A) 1,115 (9,612) PROFIT/(LOSS) BEFORE NON-CONTROLLING INTERESTS (10,671) (19,424) Profit/(Loss) attributable to non-controlling interests - (77) PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO OWNERS OF THE PARENT (10,671) (19,347) Earnings per share 11 (2.59) (4.70) Diluted earnings per share 11 (2.59) (4.70) (*): (A): As required by IFRS 5, amounts for 2014 have been reclassified. Details of the "Profit/(loss) from assets held for sale and discontinued operations" are presented in a specific section of the notes to the consolidated financial statements for the year ended 31 December

33 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ( 000) Note Profit/(Loss) for the year (10,671) (19,424) Other comprehensive income/(losses): Other components of comprehensive income that will be subsequently reclassified in profit or loss for the period, after tax Gains/(Losses) from translation of financial statements of foreign operations 21 (2,404) 1,524 Total other components of comprehensive income that will be subsequently reclassified in profit or loss for the period, after tax (2,404) 1,524 Other components of comprehensive income that will not be subsequently reclassified in profit or loss for the period, after tax Actuarial gains/(losses) on defined-benefit plans (529) Tax credit/(expense) on other gains/(losses) (82) 146 Total other components of comprehensive income that will not be subsequently reclassified in profit or loss for the period, after tax 215 (383) Total comprehensive income/(loss) for the year (12,860) (18,283) Total comprehensive income/(loss) for the year attributable to: owners of the Parent (12,860) (18,206) non-controlling interests - (77) Total comprehensive income/(loss) for the year (12,860) (18,283) 29

34 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS ( 000) Note 31 December December 2014 Non-current assets: Property, plant and equipment 12 5,281 7,881 Goodwill ,921 Other intangible assets 14 1, Other non-current assets Deferred tax assets 15 2,054 3,624 TOTAL NON-CURRENT ASSETS 9,898 15,838 Current assets: Inventories Trade receivables 17 5,554 19,278 Other current assets 18 2,036 3,091 Current financial assets 19 11,034 17,063 Cash and cash equivalents 20 6,172 11,548 TOTAL CURRENT ASSETS 25,381 51,422 ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (A) 1,574 - TOTAL ASSETS 36,853 67,260 (A): Details of "Assets held for sale and discontinued operations" are presented in a specific section of the notes to the consolidated financial statements for the year ended 31 December

35 CONSOLIDATED STATEMENT OF FINANCIAL POSITION LIABIITIES AND EQUITY ( 000) Note 31 December December 2014 Equity: Share capital 1,084 1,084 Share premium reserve 38,899 55,106 - Treasury shares (871) (871) Cash flow hedge and currency translation reserve (7,125) (4,721) Other reserves 702 5,010 Retained earnings/(accumulated losses) (7,605) (9,128) Profit/(Loss) for the year (10,671) (19,347) Equity attributable to owners of the Parent 14,413 27,133 Non-controlling interests TOTAL EQUITY 21 14,443 27,303 Non-current liabilities: Provisions for staff termination benefits and other employee benefits 22 3,321 3,665 Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES 3,561 4,184 Current liabilities: Provisions Current financial liabilities 25-5,547 Trade payables 26 6,778 24,767 Tax liabilities Other current liabilities 28 3,112 4,705 TOTAL CURRENT LIABILITIES 10,898 35,773 LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS (A) 7,951 - TOTAL LIABILITIES 22,410 39,957 TOTAL LIABILITIES AND EQUITY 36,853 67,260 (A): Details of "Liabilities directly associated with assets held for sale and discontinued operations" are presented in a specific section of the notes to the consolidated financial statements for the year ended 31 December

36 STATEMENT OF CHANGES IN CONSOLIDATED EQUITY ( 000) Share capital Share premium reserve - Treasury shares Cash flow hedge and currency translation reserve Other reserves Reserves and retained earnings Profit for the year Total equity attributable to owners of the Parent Equity attributable to noncontrolling interests Total consolidated equity Balances at 1 January ,084 55,106 (871) (6,245) 10,090 (3,164) (10,661) 45,339 1,036 46,375 Appropriation of profit for 2013 (4,697) (5,964) 10, Payment of dividend - (789) (789) Comprehensive income/ (loss) for ,524 (383) (19,347) (18,206) (77) (18,283) Balances at 31 December ,084 55,106 (871) (4,721) 5,010 (9,128) (19,347) 27, ,303 Appropriation of profit for 2014 (16,207) (4,523) 1,383 19, Other changes (140) - Comprehensive income/ (loss) for 2015 (2,404) 215 (10,671) (12,860) - (12,860) Balances at 31 December ,084 38,899 (871) (7,125) 702 (7,605) (10,671) 14, ,443 (*): Information on the principal changes in equity during 2015 is provided in Note 21 to these consolidated financial statements. 32

37 CONSOLIDATED STATEMENT OF CASH FLOWS ( 000) Note A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 23,064 18,229 B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES (9,685) (4,173) Cash flows from operating activities before changes in working capital (6,707) (12,648) Profit/(Loss) from continuing operations (11,786) (9,812) Profit/(Loss) from discontinued operations (A) 1,115 (9,612) Gain on assets sold 2,073 3,669 Amortisation and depreciation 6 1,626 2,495 Impairment losses/reversal of impairment losses on non-current assets Impairment of assets Net change in provisions for staff termination benefits Net change in current tax liabilities (40) (358) Net change in deferred tax liabilities 1,291 (798) Net change in provisions 213 (573) Currency translation differences (1,855) 1,524 (Increase) / Decrease in receivables 7,927 4,150 (Increase) / Decrease in inventories (149) (125) Increase / (Decrease) in payables (8,269) (436) Cash generated by/(used in) operating activities included in discontinued operations (2,487) 4,886 C. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES (1,743) 9,797 (Purchases)/disposals of fixed assets: - Intangible assets (1,280) (343) - Property, plant and equipment (428) (1,250) - Financial assets 38 (203) Proceeds from assets sold, net of cash transferred and the related costs to sell (48) 12,061 Cash generated by/(used in) investing activities included in discontinued operations (25) (468) D. CASH FLOWS FROM (FOR) FINANCING ACTIVITIES - (789) Change in non-controlling interests - (789) E. CASH FLOW FOR THE YEAR (B+C+D) (11,428) 4,835 F. NET CASH AND CASH EQUIVALENTS AND CURRENT FINANCIAL ASSETS AT END OF YEAR (A+E) 11,636 23,064 of which: net cash and cash equivalents and current financial assets included in assets and liabilities held for sale and discontinued operations (5,570) - G. NET CASH AND CASH EQUIVALENTS AND CURRENT FINANCIAL ASSETS AT END OF YEAR (A+E) ON REPORTED BASIS 17,206 23,064 (*): (A): As required by IFRS 5, amounts for 2014 have been reclassified. Details of the "Profit/(loss) from assets held for sale and discontinued operations" are presented in a specific section of the notes to the consolidated financial statements for the year ended 31 December

38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 34

39 4.1 PRINCIPAL ACTIVITIES Acotel Group SpA is a joint-stock company listed on the Milan Stock Exchange and operates as a holding company for a Group of companies present in the ICT sector, based on a single business project. The main companies in the Acotel group, in addition to Acotel Group SpA, which basically performs management functions and manages the Acotel Platform, through which it operates directly on the market as an Application Service Provider, are: - Acotel SpA, which markets the multimedia services for Italy; - Acotel do Brasil Ltda, which markets multimedia services to Brazilian operators; - Acotel Interactive Inc., which supplies consumer services, primarily serving the US, Spanish and Mexican markets; - AEM Acotel Engineering and Manufacturing SpA, which deals with the design, production and sale of security systems and the marketing of services for the management of energy, water and gas consumption, in addition to assembly of the devices used in providing such services; - Bucksense, Inc., which operates as a global interactive advertising agency; - Acotel SRL, which supplies consumer services in Argentina; - Flycell Italia Srl, which supplies consumer services in Italy; - Acotel Interactive Conteúdo Para Telefonia Móvel LTDA, which supplies consumer services in Brazil; - Noverca Srl, which manages the Nòverca platform used in providing integrated communications services; - Noverca Italia Srl (in liquidation), which, together with Noverca Srl, supplies MVNA services; - Acotel Interactive India Private Limited, which supplies consumer services in India. These financial statements have been drawn up in thousands of euros, the Acotel Group s functional currency. The foreign companies are included in the consolidated financial statements according to the accounting standards indicated in the following notes. Publication of the consolidated financial statements of Acotel Group SpA for the year ended 31 December 2015 was authorised by the Board of Directors meeting of 14 March 2016, which authorised the Chairman and CEO to make any necessary changes to the form of the financial statements. 4.2 ACCOUNTING STANDARDS USED IN PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements for the year ended 31 December 2015 have been prepared in accordance with the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union, and effective at the date of preparation of the financial statements. The financial statements also comply with the measures issued in implementation of art. 9 of Legislative Decree 38/2005. IFRS also includes all the revised International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), previously called the Standing Interpretations Committee (SIC). 35

40 Accounting standards and interpretations effective as of 1 January 2015 The new standards and interpretations regard: IFIC 21 Levies; Changes to IFRS 1 First-Time Adoption of IFRS; Changes to IFRS 3 Business Combinations; Changes to IFRS 8 Operating Segments; Changes to IFRS 13 Fair Value Measurement; Changes to IAS 40 Investment Property. Adoption of these standards and interpretations has not had any impact on the measurement of items in the consolidated financial statements. New standards and interpretations not yet effective This section shows a list of standards, interpretations and updates to previously published standards, or to those yet to be endorsed by the European Union, whose application will be obligatory in future periods, and for which early adoption was either decided against or is not permitted: IFRS 14 Regulatory Deferral Accounts; IFRS 15 Revenues from Contracts with Customers; IFRS 16 Leases; Changes to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations; Changes to IFRS 7 Financial Instruments: Disclosures; Changes to IFRS 9 Financial Instruments; Changes to IFRS 10 Consolidated Financial Statements; Changes to IFRS 11 Joint Arrangements; Changes to IAS 12 Income Taxes; Changes to IAS 16 Property, Plant and Equipment; Changes to IAS 19 Defined Benefit Plans: Employee Contributions; Changes to IAS 27 Consolidated and Separate Financial Statements; Changes to IAS 28 Investments in Associates; The Group is evaluating the eventual impact that adoption of these standards and interpretations may have on the consolidated financial statements. 4.3 BASIS OF PRESENTATION The financial statements were drawn up on the basis of the historical cost principle, with the exception of certain financial instruments measured at fair value, and on a going concern basis. In this regard, the Group s management believes that, despite the difficult economic and financial environment, there are no material uncertainties (as defined by IAS 1) regarding its ability to continue as a going concern, above all in view of the Group s operational flexibility and financial strength. 36

41 Acotel Group companies have prepared the income statement on the basis of the nature of expenses format, which is considered more representative of the Group s approach to management of the business and is utilised for internal reporting. The Group also presents a separate statement of comprehensive income, showing components of income and expense accumulated in equity. The form of presentation used for the statement of financial position distinguishes between current and non-current assets and liabilities, as permitted by IAS 1. Equity is presented in columns that reconcile the opening and closing balance of each component of the schedule. The statement of cash flows is prepared in accordance with the indirect method. Finally, with reference to CONSOB Resolution no of 27 July 2006, relating to financial statement presentation, related party disclosures have been included as specific line items in the income statement, statement of financial position and statement of cash flows. 4.4 CONSOLIDATION POLICIES Basis of consolidation In addition to the Parent Company, Acotel Group SpA, the following direct or indirect subsidiaries of Acotel Group SpA are consolidated at 31 December 2015: Company Date of acquisition Group s % interest Registered office Share capital Acotel SpA 28 April % (2) Rome EURO 13,000,000 AEM Acotel Engineering and Manufacturing SpA 28 April % Rome EURO 858,000 Acotel Chile SA 28 April % Santiago, Chile USD 17,330 Acotel Espana SL 28 April % Madrid EURO 3,006 Acotel Do Brasil Ltda 8 August 2000 (1) 100% Rio de Janeiro BRL 1,868,250 Acotel Interactive, Inc. 28 June 2003 (1) 100% Wilmington USD 10,000 Acotel Interactive Conteúdo Para Telefonia Móvel LTDA 6 June 2006 (1) 100% (3) Rio de Janeiro BRL 250,000 Yabox LLC 24 October 2007 (1) 100% (3) Wilmington USD 1 Flycell Italia Srl 10 July 2008 (1) 100% (3) Rome EURO 90,000 Flycell Argentina SA 26 October % (4) La Plata ARS 12,000 Acotel Serviços De Telemedicina Ltda. 28 March 2011 (1) 100% (5) Rio de Janeiro BRL 400,000 Acotel Teleçomunicaçāo Ltda. 28 March 2011 (1) 100% (5) Rio de Janeiro BRL 400,000 Bucksense, Inc. 28 June 2011 (1) 100% Nevada USD 10,000 Noverca Srl 10 July 2002 (6) 100% (7) Rome EURO 10,000 Noverca Italia Srl (in liquidation) 9 May 2008 (1) 100% (7) Rome EURO 10,000 Acotel SRL 30 July 2013 (1) 100% (4) Buenos Aires ARS 20,000 Acotel Interactive India Private Limited 22 August 2013 (1) 100% (3) Mumbai Rs 100,000 37

42 (1) The date of the company s entry into the Group coincides with its incorporation. (2) AEM Acotel Engineering and Manufacturing owns 1.92% of the share capital. (3) Controlled via Acotel Interactive Inc. (4) Controlled via Acotel Interactive Inc. and Yabox LLC. (5) Controlled via Acotel do Brasil Ltda. (6) Prior to this date the Group owned 50% of this company, accounted for in investments in associates. (7) Since 20 May 2013, the Group has full control of this company. The basis of consolidation changed during 2015, as a result of the sale of the 100% interest in Info2cell.com FZ-LLC and all its subsidiaries to the Indian company, Altruist Technologies Pvt Ltd, and the sale of the Group s 100% interest in Flycell Telekomunikasyon Hizmetler AS. In addition, due to the immateriality of the company s contribution to the results of operations, the investee, Urbe Roma S.S.D. a r.l., has been deconsolidated since 1 January Consolidation principles The consolidated financial statements include the financial statements of Acotel Group SpA and those of its subsidiaries, as prepared at and for the year ended 31 December Subsidiaries are defined as entities over which the Parent Company has the power to govern the financial and operating policies of the entity. The net profit or loss of subsidiaries acquired or sold during the period is included in the consolidated income statement from the effective acquisition date until the effective disposal date. Where necessary, adjustments are made to the financial statements of subsidiaries in order to bring their accounting policies into line with those adopted by the Group. The assets and liabilities and the revenues and expenses of consolidated companies are recorded on a line-by-line basis. The carrying amount of investments is eliminated against the corresponding share of the subsidiary s equity and the individual assets and liabilities are recognised at fair value at the date control was obtained. Any positive difference is recognised in non-current assets as Goodwill, while negative differences are recognised in the income statement. Intercompany receivables and payables, including dividends distributed within the Group, are eliminated. Profits, losses, revenues and expenses arising from intercompany transactions, and that have yet to be realised on transactions with third parties, are eliminated. The financial statements of Group companies are prepared in the functional currency of each company. For the purposes of the consolidated financial statements, the financial statements of each company are translated into the Group s functional and presentation currency: the euro. The assets and liabilities of overseas subsidiaries are translated into euros at closing exchange rates. Revenues and costs are translated at average rates for the period. Any translation differences are accumulated in equity in the currency translation reserve. This reserve is recognised in profit or loss as a gain or a loss in the period in which the related subsidiary is deconsolidated. Non-controlling interests in equity and in profit for the year are shown in the specific items in the consolidated statement of financial position and income statement. 38

43 Accounting policies The following is a summary of significant accounting policies used in the preparation of the consolidated financial statements: Property, plant and equipment Property, plant and equipment used to manufacture or supply goods and services is recognised at historical cost, inclusive of any incidental expenses and the direct costs incurred to make the asset ready for use. Buildings, plant and equipment are accounted for less accumulated depreciation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section Impairment of assets below. Depreciation is applied on a straight-line basis each year, based on the estimated useful life of the asset and applying the following rates: Buildings 4% ICT platforms 25-50% Specific plant 10-20% Other plant and machinery 15-20% Computers 20% Other industrial equipment 15-25% Vehicles 25% Furniture, fixtures and fittings 12% Gains and losses on disposals are calculated as the difference between the proceeds from asset sales and the carrying amount of such assets and are recognised in the income statement for the period. Ordinary maintenance and repair costs are recognised in full in the income statement. Improvements designed to increase the future economic benefits of property, plant and equipment are capitalised and depreciated in accordance with their estimated useful lives. Leasehold improvements that qualify for recognition are recognised as property, plant and equipment and depreciated on the basis of the shorter of the residual lease term and the residual useful life of the asset. Intangible assets and goodwill Intangible assets are recognised at purchase or production cost, inclusive of any direct incidental expenses incurred to make the asset ready for use. These assets are accounted for less accumulated amortisation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section Impairment of assets below. Intangible assets are amortised systematically, as of the moment the asset is ready for use, on the basis of their expected useful lives. 39

44 Research and development costs are recognised in full in the income statement. Patents and software are recognised at cost and amortised on a straight-line basis over the residual useful life of the asset. Concessions, licenses and similar rights include the costs incurred in the preparation and configuration of the technology infrastructure that enables the Group s customers to use its telecommunications services. These costs are amortised on the basis of their expected useful lives. Goodwill and other intangible assets with an indefinite useful life are not amortised on a regular basis, but are tested for impairment at least once a year at the level of the cash generating unit that has benefited from the synergies deriving from the acquisition. These impairments are not reversed. Internally generated intangible assets Internally generated intangible assets deriving from the development of software used by Group companies are accounted for in the statement of financial position, only if all the following conditions are met: the asset may be identified; the asset created is likely to generate profits in the future; the asset s development costs may be reliably measured. These intangible assets are amortised on a straight-line basis, as of the date on which the outcome of the project is available for use, based on the estimated useful life of the capitalised costs (3 years). When internally generated assets may not be accounted for in the statement of financial position, development costs are recognised in the income statement for the year in which they are incurred. When the internally generated intangible assets regard the development of software that may be considered an integral part of the hardware to which it is connected, such assets are treated as items of property, plant and equipment and included in this asset category. Impairment of assets Property, plant and equipment and intangible assets are tested at least once a year to determine whether there are any indications of impairment. In the presence of such indications, the recoverable amount of these assets is estimated to calculate impairment losses. If the recoverable amount of an individual asset cannot be estimated, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Recoverability of the carrying amounts of intangible assets with an indefinite useful life and goodwill is tested each year or whenever there is an indication of a possible impairment. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. In determining value in use, estimated future cash flows are discounted using a discount rate that reflects the time value of money and the risks specific to the activities of each cash generating unit. As required by Document 4, published jointly by the Bank of Italy, the CONSOB and ISVAP 40

45 (Italy s insurance industry regulator) on 3 March 2010, the impairment test is submitted for approval by the Parent Company s Board of Directors. If the recoverable amount of an asset (or of a cash generating unit) is estimated to be lower than the relevant carrying amount, then it is reduced to this lower recoverable amount. This impairment loss is immediately recognised in the income statement, being first accounted for as a reduction in the carrying amount of goodwill and, then, as a reduction in other assets in proportion to their carrying amount. When an asset is no longer impaired, the carrying amount of the asset (or of the cash generating unit), except in the case of goodwill and other assets with an indefinite useful life, is increased to reflect the estimated recoverable amount, but only to the extent of the carrying amount of the asset had there not been any impairment loss. The reversal is immediately recognised in the income statement in the year in which the impairment is reversed. Inventories Inventories are entered at the lower of cost and net realisable value. Cost includes direct materials and direct staff costs, where applicable, and production overheads, in addition to other costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average cost method. Net realisable value reflects the selling price less any estimated completion costs and costs to sell. Receivables Receivables are recognised according to their estimated realisable value. Receivables denominated in currencies other than the euro are translated at closing exchange rates. Financial instruments The Group classifies financial assets at the time of purchase based on the following categories: - financial assets at fair value through profit or loss, which include financial assets acquired primarily with the intention of profiting from short-term price movements or designated as such upon initial recognition; - held-to-maturity financial assets, which are financial assets with a fixed maturity and with fixed or determinable payments that the Group has the positive intention and ability to hold to maturity; - loans and receivables, which are financial assets with fixed or determinable payments that are not quoted in an active market and are different from those classified upon initial recognition as financial assets at fair value through profit or loss or as available-for-sale financial assets; - available-for-sale financial assets, which are financial assets not classified in the above categories or that are designated as such upon initial recognition. Financial assets are recognised at the trade date and are initially accounted for at cost, including any transaction costs. Subsequent measurement depends on the type of instrument, as follows: 41

46 - financial assets held for trading are measured at fair value, with any fair value gains or losses recognised in profit or loss for the period; - financial assets that are not listed on an active market, loans and receivables and all held-tomaturity financial assets are accounted for at amortised cost using the effective interest method, less provisions for impairment losses; - available-for-sale financial assets are measured at fair value, with any fair value gains or losses recognised in other comprehensive income/(losses) until they are sold or impaired; at this time, the total gains and losses previously recognised in equity are recycled through the income statement for the period. The fair values of financial assets quoted in active markets are calculated on the basis of bid prices quoted on the relevant market. The fair values of financial assets that are not quoted in an active market are estimated on the basis of quoted prices for similar instruments or using appropriate valuation techniques adapted to the specific situation of the issuer. The Group uses the following hierarchy of valuation techniques to determine and record the fair values of financial instruments: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques in which all inputs having a material impact on fair value are observable, either directly or indirectly; Level 3: techniques based on inputs having a material impact on fair value, not based on observable market data. Cash and cash equivalents This item includes cash in hand and at bank, other demand deposits and highly liquid short-term investments that may be readily converted into cash and are not subject to significant risk of changes in value. Non-current assets held for sale and discontinued operations Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered primarily through sale or liquidation, rather than through continued use. This condition is only deemed to have been satisfied when the sale or liquidation is highly probable and the asset or disposal group is available for immediate sale in its present state. Management must be committed to a plan to sell, which must be completed within 12 months of classification as held for sale. Assets held for sale must be excluded from profit or loss from continuing operations and presented in a separate line item in the income statement showing the after-tax profit or loss from discontinued operations. Treasury shares Treasury shares are measured at cost and deducted from equity. Proceeds from the sale, issue or cancellation of treasury shares is accounted for as a change in equity, net of the related tax effect. 42

47 Employee benefits Under IAS 19, staff termination benefits are classifiable as post-employment benefits equivalent to a defined-benefit plan. The amount accrued under this plan has to be projected to estimate the future liability at the time of termination of employment and then discounted to present value using the projected unit credit method. This is an actuarial method based on demographic and financial assumptions, designed to arrive at a reasonable estimate of the benefits vested in employees for their years of service. Actuarial calculations determine current service cost, reflecting the benefits accrued to employees during the year, which is reported in the income statement as a staff cost, and interest cost, representing the imputed interest that the Company would have paid to lenders had it borrowed an amount equivalent to the benefits. This cost is recognised as a finance cost. The unrealised gains and losses arising from changes in actuarial assumptions are recognised in comprehensive income. These components may not be reclassified to profit or loss in a future period. Payables Trade payables are accounted for at face value. Payables denominated in currencies other than the euro are translated at closing exchange rates. Provisions The Group recognises provisions when it has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Changes in estimates are recognised in the income statement in the period in which the change occurs. Revenue Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when payment is received. Revenue is measured at the fair value of the consideration received or receivable, taking into account the contractually agreed terms of payment and excluding taxes and duties. Revenue is recognised upon transfer of the risks and benefits of ownership or upon performance of the service. In particular: revenue from services rendered is recognised on the basis of the actual service performed during the year; revenue from software licensing to third parties is recognised upon transfer; revenue from design, production and installation of electronic systems is recognised upon performance of the service and delivery of the relevant products to, and acceptance by, the customer. 43

48 Income taxes Current income taxes are recognised, for each Group company, on the basis of their estimated taxable income in accordance with tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period in each country, taking account of applicable exemptions and tax credits. Provisions for tax expense that may result from the transfer of subsidiaries undistributed earnings are only made if there is an actual expectation that such earnings will be transferred. Deferred tax assets and liabilities are calculated on temporary differences between the carrying amount of assets and liabilities and their tax bases, in accordance with the tax rates expected to be in force when the differences will reverse. Current and deferred tax assets and liabilities deriving from transactions whose results are recognised directly in equity are likewise accounted for in equity. In the event of a change in the above tax rates, the carrying amount of deferred tax assets and liabilities is adjusted, and the adjustment recognised in the income statement and equity in line with the underlying transaction. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. Since 2004 and for a three-year period, Acotel Group SpA and its Italian subsidiaries, AEM Acotel Engineering and Manufacturing SpA and Acotel SpA, have participated in a form of tax consolidation arrangement introduced by articles of 117 and 128 of the Consolidated Income Tax Act and the Ministerial Decree of 9 June This option which, pursuant to art. 117 of the Act has a duration of three years and is irrevocable, was renewed by the above companies in At the same time, Noverca Srl opted to participate for the same three-year period, subsequently renewed in 2010 and Flycell Italia Srl joined the arrangement in 2010, renewing its participation in Earnings per share Earnings per share is calculated by dividing profit for the year by the average weighted number of shares outstanding in the period, less treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Foreign currency translation Foreign currency transactions are translated using the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency at the end of the reporting period are translated at closing exchange rates. Any foreign exchange differences resulting from the settlement of monetary items or their translation at rates different from those applied at the time of initial recognition are recognised in the income statement. 4.5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group is required to make estimates and assumptions during preparation of the financial statements and the related notes in application of IFRS. The actual values of the related revenue, 44

49 costs, assets and liabilities could differ from these estimates. The estimates are primarily used to record revenue and costs that have yet to be confirmed by customers and suppliers, any impairments of goodwill and inventories, and provisions for bad debts, litigation and taxation. The estimates and assumptions are periodically reviewed and the effects of any change are immediately reflected in the income statement. In this regard, the situation caused by the ongoing global economic and financial crisis has rendered it necessary to make assumptions about future performance that are subject to significant uncertainty. It is, therefore, not impossible that the actual results for the subsequent financial year may differ from any estimates and, as a result, require adjustments to the carrying amounts of the related items. These adjustments, which are currently impossible to estimate or predict, may be material. The items primarily affected by these situations of significant uncertainty are goodwill and deferred tax assets. In particular, with regard to revenue and costs yet to be confirmed by customers, turnover generated by Digital Entertainment services in the months of November and December and a number of related cost items include preliminary figures, deriving primarily from internal reporting systems, and estimates not yet confirmed by mobile transaction network providers and/or operators. Management also consults the Group s legal and tax advisors in order to estimate the liabilities deriving from litigation when it deems it probable that an outflow of resources embodying economic benefits will be required and the amount of the resulting losses may be reliably estimated. If it is possible that there will be an outflow of resources embodying economic benefits but the amount of the obligation cannot be measured with sufficient reliability, the resulting contingent liability is disclosed in the notes to the financial statements. These consolidated financial statements also include deferred tax assets linked to the recognition of tax losses that can be used in future years and components of income deductible in future years. These assets are recognised when the Directors believe it is highly likely that they will be recovered in future years. These deferred tax assets are recoverable to the extent that the future taxable profit indicated in the long-term plans prepared by the management of Group companies is sufficient to absorb the above tax losses. In any event, if it should become apparent that the Group is no longer able, in future years, to recover all or a part of the deferred tax assets recognised, the resulting adjustment will be accounted for in the income statement for the year in which this occurs. 4.6 DIRECTORS ASSESSMENT OF COMPLIANCE WITH GOING CONCERN REQUIREMENTS For the purposes of preparation of these financial statements and in compliance with the requirements of the Italian Civil Code and the relevant accounting standards, the Directors of Acotel Group SpA conducted an assessment of the Group s compliance with the requirements of the going concern principle. This was done in view of the fact that, at the end of 2015, the Group had recorded a consolidated loss of 10,671 thousand (a loss of 19,424 thousand in 2014), resulting primarily from negative EBITDA of 8,632 thousand (negative EBITDA of 6,648 thousand in 2014), reducing consolidated equity to 14,443 thousand ( 27,303 thousand at 31 December 2014), and net funds to 11,636 thousand ( 23,064 thousand at 31 December 2014). 45

50 The different business areas in which the Acotel Group operates contributed as follows to the consolidated loss for the year ended 31 December 2015: (a) NET business area: (b) INTERACTIVE business area: (c) TLC business area: (d) Taxation and adjustments: (e) Net effect of discontinued operations : Consolidated loss for the year: ( 3,052) thousand ( 2,585) thousand ( 1,818) thousand ( 4,331) thousand 1,115 thousand ( 10,671) thousand This shows how the Group continues to experience operational difficulties across all its businesses, connected with deteriorating conditions in our principal geographical markets and sectors of operation, and the start-up phase in which the recently entered business areas still find themselves and which, to date, are not able to guarantee the Group stable earnings or a stable financial position. As in the previous year, the operating losses incurred primarily reflect the following: in the NET business area, the revenue generated by this business in 2015, amounting to 1,937 thousand ( 1,459 thousand in 2014), including 994 thousand from videosurveillance and 943 thousand from the Energy business, are not yet sufficient to cover fixed costs and make a positive contribution to the Group s consolidated results, despite the positive market response to the services offered (partly thanks to the promotion and marketing of the myenergy service offered by ENI in partnership with the Acotel Group); in the Acotel Interactive business area, the combined effect (i) of the cessation, from 2014, of the activities carried out in the United States, as a result of the introduction of new legislation and regulations by the US government, which have significantly reduced the size of the market for Digital Entertainment services; (ii) the operational difficulties, again caused by new local regulations, encountered in Mexico with regard to the major telecommunications operators and that have resulted in a significant reduction in turnover from the second half of 2015; (iii) the Group s withdrawal from the Middle Eastern market following the sale of the subsidiary, Info2cell.com LZ.LLC; (iv) the new, stricter operating rules in the new code of conduct introduced in Italy with effect from January 2014; (v) the impact of the cost of promotions linked to the Interactive division s entry into the Indian market in 2014; (vi) the ban, recently introduced by local regulators, on the distribution of certain services offered in the Ecuadorian and Dominican markets, and finally (vii) the delay in launching the advertising business in which the subsidiary, Bucksense, operates. This business area generated revenue of 33,240 thousand in 2015 ( 41,174 thousand in 2014), with negative EBITDA of 654 thousand in 2014 deteriorating to a negative 2,335 thousand in 2015; in the TLC business areas, the still insufficient scale of the MVNA (Mobile Virtual Network Aggregator) business, which contributed revenue of 1,341 thousand in 2015 ( 531 thousand in 2014). In this area, the Group continues to report operating losses, even if they have been reduced compared with previous years, despite the positive contribution from the sale of Noverca s retail customers to Telecom Italia (this transaction was completed in the first half of 2015, resulting in the Group s discontinuation of its B2C MVNO services). In this regard, the Group is engaged in a range of commercial initiatives 46

51 designed to acquire new customers, in addition to proceeding to enable existing customers and providing services to previously enabled MVNOs. The consolidated results for 2015 reflect a contraction of the traditional business (Interactive), whilst the new businesses have yet to acquire sufficient scale, resulting in a continuing decline in turnover ( 37,096 thousand in 2015, compared with 43,737 thousand in 2014) and a reduction in net invested capital ( 2,807 thousand at 31 December 2015, compared with 4,239 thousand at 31 December 2014). The operating losses of recent years have also resulted in a reduction in liquidity ( 16,001 thousand at 31 December 2015, compared with 27,011 thousand at 31 December 2014), with a consequent decline in net funds ( 11,636 thousand at 31 December 2015, compared with the 23,064 thousand of 31 December 2014). It should also be noted that, from 2014, the Group has accompanied its restructuring and repositioning with the sale of a number of non-core assets, such as the sale of the group headed by the former Irish subsidiary, Jinny Software (completed on 1 August 2014), the sale of Noverca Italia s retail customers (completed on 8 June 2015), and the more recent sale of the group headed by the former subsidiary, Info2cell.com FZ.LLC (completed on 30 September 2015). These transactions have enabled the Group to raise a part of the funds needed to finance the launch of its new businesses. The above restructuring has yet to be transformed into a stable improvement in the Group s operating performance, demonstrating how indispensable it is for the Group to take steps to ensure a return to profit, at least over the medium to long term. The Directors have, therefore, deemed it necessary to draw up formal plans to ensure a return to profit over the medium to long term, to progressively reverse the current erosion of capital and cash flow and relaunch the Group, based around our new, recently created businesses. Supported by an expert advisor, this has led the Group to draw up a business plan for the period (the Plan ), which was approved on 14 March The Plan sets out details of the steps to be taken in order to ensure growth in revenue and earnings, resulting in a return to profit (expected to occur in 2018) and the ensuing generation of positive operating cash flow, sufficient to support the traditional business (Interactive) and to fund the investment needed to develop the new businesses. In the Plan, the decline in equity (limiting the Group s ability to absorb further losses) and the reduction in turnover from the traditional business (conducted through the subsidiary, Acotel Interactive), is offset by projections of strong medium- to long-term growth in turnover and earnings from the new businesses (above all the new Energy business, the Net business area, Advertising, the Interactive business area and the MVNA services provided by the TLC business). The Plan thus sets out a path to renewed profitability, with the aim of reversing the recent erosion of the Group s financial resources, and halting the consequent decline in equity. Despite significant uncertainty regarding projected revenue and earnings growth from the new businesses, this will be key to achieving the expected operating and financial performance, conserving the Group s capital and ensuring the Group s renewed ability to generate cash after the outflows seen in past years. In view of the impact of any failure to achieve the targets set out in the Plan, the Directors are aware of the need to closely and carefully monitor results, so as to immediately identify any 47

52 underperformance that could prevent a return to profit and further erode the Group s capital and finances. In conclusion, based on their assessment of the validity of the actions taken, the Directors have prepared the consolidated financial statements on a going concern basis, aware of the fact that, in the medium to long term, the application of such a basis is subject to the Group s effective ability to fulfil the assumptions and carry out the initiatives contained in the Plan, or to raise fresh capital in the form of equity or debt. 4.7 ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATIONS This section provides a breakdown of Assets and liabilities held for sale and discontinued operations, as presented in the consolidated income statement, the consolidated statement of financial position and the consolidated statement of cash flows. As more fully described above in the Directors report on operations, in 2015 the Group concluded a number of strategic transactions, involving the partial withdrawal from business segments and markets no longer deemed to have appreciable earnings potential. The following schedules show details of amounts accounted for in the Profit/(Loss) from assets held for sale and discontinued operations, resulting from the discontinuation of Nòverca s retail business, together with cost and revenue items relating to the liquidation of Noverca Italia Srl, and the sale of the subsidiaries, Flycell Telekomunikasyon Hizmetler AS, Info2cell.com FZ-LLC and Jinny Software Ltd., the latter completed in 2014: 48

53 Income statement for Noverca Italia Srl (in liquidation) ( 000) Revenue 2,794 13,632 Other income 3, Change in inventories of work in progress, semi-finished and finished goods (22) (119) Raw materials, semi-finished and finished goods (16) (462) External services (2,602) (18,163) Staff costs (760) (1,421) Capitalised internal costs Other costs (47) (103) Gross operating profit (EBITDA) 2,414 (6,024) Amortisation and depreciation (167) (742) OPERATING PROFIT/(LOSS) (EBIT) 2,247 (6,766) Finance income/(costs) (352) (370) PROFIT/(LOSS) FOR THE YEAR 1,895 (7,136) Provision for liquidation expenses (442) - PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS 1,453 (7,136) Income statement for Flycell Telekomunikasyon Hizmetler AS ( 000) Revenue External services (55) (507) Rentals and leases - (11) Staff costs (6) (156) Other costs (2) (102) Gross operating profit (EBITDA) (10) (223) Finance income/(costs) 10 (41) PROFIT/(LOSS) FOR THE YEAR - (264) Gain/(Loss) on sale of company (249) - PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS (249) (264) 49

54 Income statement for Info2cell.com FZ-LLC ( 000) Revenue 8,499 11,901 Raw materials, semi-finished and finished goods (10) (27) External services (5,628) (8,494) Rentals and leases (83) (92) Staff costs (1,267) (1,658) Other costs (123) (134) Gross operating profit (EBITDA) 1,388 1,496 Amortisation and depreciation (65) (70) OPERATING PROFIT/(LOSS) (EBIT) 1,323 1,426 Finance income/(costs) (81) (80) PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS 1,242 1,346 Taxation - 58 PROFIT/(LOSS) FOR THE YEAR 1,242 1,404 Gain/(Loss) on sale of company (1,824) - Foreign exchange gains/(losses) realised PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS (89) 1,404 Income statement for Jinny Software Ltd ( 000) Revenue - 7,075 Raw materials, semi-finished and finished goods - (384) External services - (1,381) Rentals and leases - (220) Staff costs - (4,575) Capitalised internal costs Other costs - (310) Gross operating profit (EBITDA) Amortisation and depreciation - (292) OPERATING PROFIT/(LOSS) (EBIT) Finance income/(costs) - (233) PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS - 60 Taxation - (7) PROFIT/(LOSS) FOR THE PERIOD - 53 Goodwill impairment and costs to sell incurred on sale of Jinny Software - (2,946) Costs to sell incurred on sale of Jinny Software - (723) PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS - (3,616) 50

55 The following schedule shows details of Assets held for sale and discontinued operations and Liabilities directly associated with assets held for sale and discontinued operations attributable to Noverca Italia Srl (in liquidation) and included in the statement of financial position at 31 December 2015: ( 000) 31 December 2015 Trade receivables 1 Other current assets 1,178 Cash and cash equivalents 395 TOTAL ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS 1,574 Provisions for staff termination and other employee benefits 269 Provisions 443 Current financial liabilities 5,965 Trade payables 1,070 Tax liabilities 18 Other current liabilities 186 TOTAL LIABILITIES DIRECTLY ASSOCIATED WITH ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS 7, OPERATING SEGMENTS The Acotel Group is currently organised into three business areas: - Acotel Interactive; - Acotel Net; - Acotel TLC. In compliance with the provisions of IFRS 8, identification of the Group s operating segments is based on internal reports used by management in taking strategic decisions. These internal reports, which also reflect the current organisational structure of the Group, are based on the various products and services supplied and are prepared using the same accounting standards described in the section Basis of presentation in the consolidated financial statements. It should be noted that, following the sales of Info2cell.com LZ-FFC and Flycell Telekomunikasyon Hizmetler AS and reclassification of the assets and liabilities involved in the liquidation of Noverca Italia Srl to discontinued operations in the income statement, information on operating segments is provided for continuing operations so as to reflect the Group s new organisational structure. Breakdowns of the Group s results by operating and geographical segments are shown below: 51

56 Results by operating segment ( 000) 2015 ACOTEL INTERACTIVE ACOTEL NET ACOTEL TLC Adjustments / Other Total Revenue: Revenue from third party customers 33,240 1,937 1,919-37,096 Inter-segment revenue Total 33,240 1,937 1,919-37,096 Gross operating profit/(loss) (2,335) (2,848) (456) (2,993) (8,632) Amortisation, depreciation and impairments (929) (211) (936) 166 (1,910) Operating profit/(loss) (3,264) (3,059) (1,392) (2,827) (10,542) Finance income 1, ,387 Finance costs (665) (5) (434) 319 (785) Profit/(Loss) for the year before tax (2,585) (3,052) (1,818) (2,485) (9,940) Taxation (1,846) Profit/(Loss) for the year from continuing operations (11,786) ( 000) 2014 ACOTEL INTERACTIVE ACOTEL NET ACOTEL TLC Adjustments / Other Total Revenue: Revenue from third party customers 41,174 1,459 1,104-43,737 Inter-segment revenue Total 41,174 1,459 1,104-43,737 Gross operating profit/(loss) (654) (1,881) (764) (3,349) (6,648) Amortisation, depreciation and impairments (794) (83) (1,724) 102 (2,499) Operating profit/(loss) (1,448) (1,964) (2,488) (3,247) (9,147) Finance income 1, (168) 1,078 Finance costs (654) (3) (13) (36) (706) Profit/(Loss) for the year before tax (880) (1,965) (2,479) (3,451) (8,775) Taxation (1,037) Profit/(Loss) for the year from continuing operations (9,812) Total consolidated assets and liabilities by operating segment at 31 December 2015 and 2014 are as follows: 52

57 ( 000) ACOTEL INTERACTIVE ACOTEL NET ACOTEL TLC Adjustments/ Other Total At 31 December ,697 3,660 4, ,853 At 31 December ,961 2,266 7, ,260 Results by geographical segment The following table provides an analysis of the Group s sales in the various geographical segments, regardless of the nature of the goods and services sold: ( 000) Increase/ (Decrease) Latin America 18,796 25,232 (6,436) Italy 12,013 15,237 (3,223) India 5,814 1,446 4,368 Other European countries 446 1,283 (837) Other (512) 37,096 43,737 (6,641) The following table shows a geographical breakdown of the total value of non-current assets, excluding financial assets and deferred tax assets: ( 000) At 31 December 2015 At 31 December 2014 Latin America 3,254 4,936 Italy 2,638 2,673 North America 1,901 1,548 Other European countries India Middle East - 2,988 Total non-current assets 7,844 12,214 The Group did not earn revenue from any specific customer representing more than 10% of total revenue for the period. 4.9 NOTES TO THE INCOME STATEMENT Note 1 - Revenue Revenue amounts to 37,096 thousand for 2015, down 15% on the 43,737 thousand of the previous year. The following table shows a breakdown: 53

58 ( 000) Increase/ (Decrease) Acotel Interactive 33,240 41,174 (7,934) Acotel Net 1,937 1, Acotel TLC 1,919 1, Total 37,096 43,737 (6,641) A description of the principal events influencing the revenue of each business area during 2015 is provided below. ACOTEL INTERACTIVE The Acotel Interactive business area includes the services provided directly to consumers (Digital Entertainment), and those supplied to telephone companies and commercial companies (Mobile Services), and has the primary purpose of supplying value added content and services over mobile phones and the web. This business area also includes the advertising services (Interactive Advertising) provided directly or indirectly by the subsidiary, Bucksense Inc.. A breakdown of revenue in this segment is given in the following table: ( 000) Increase/ (Decrease) Digital Entertainment 27,574 33,150 (5,576) Mobile Services 5,426 8,024 (2,598) Interactive Advertising Total 33,240 41,174 (7,934) In 2015, Digital Entertainment services generated revenue of 27,574 thousand, down 17% on These services are supplied by Acotel Interactive Inc. and its direct subsidiaries, accounting for a total of 22,336 thousand, and by Acotel SpA, accounting for 5,238 thousand. The decrease on 2014 reflects reduced turnover in South America and Italy. Mobile Service revenue, amounting to 5,426 thousand, is down 32% on These include the revenues from services rendered by the subsidiary, Acotel do Brasil Ltda, to the Brazilian operator, TIM Celular, amounting to 4,468 thousand, and those generated by the services provided to Telecom Italia by the subsidiary, Acotel SpA, totalling 958 thousand. The decrease compared with 2014 is due to reduced turnover in the Brazilian and Italian markets. ACOTEL NET Revenue reported by the Acotel Net business area for 2015 amounts to 1,937 thousand, up 33% on the figure for 2014, as shown in the following table: 54

59 ( 000) Increasse/ (Decrease) Security Systems 994 1,093 (99) Energy Total 1,937 1, The Security Systems segment generated revenue of 994 thousand in This revenue is generated by the design, production and maintenance of electronic security systems in Italy by the subsidiary, AEM Acotel Engineering and Manufacturing SpA, and derives from the installation, supply, servicing and maintenance of remote surveillance equipment primarily installed at certain provincial branches of the Bank of Italy, at Italian police headquarters and at a number of companies in the ACEA Group. The Energy segment generated revenue of 943 thousand during the year. This revenue relates primarily to the project being carried out by the Group on behalf of Poste Italiane SpA, regarding the management of energy consumption at approximately 8,500 post offices, and the contract with ENI, in relation to its myenergy service. ACOTEL TLC The revenue generated by the Acotel TLC business area in 2015 amounts to 1,919 thousand, up 74% on 2014, as shown in the following table: ( 000) Increase/ (Decrease) Mobile Virtual Network Aggregator services 1, Mobile Communications Total 1,919 1, The Group generated revenue of 1,341 thousand from the provision of Mobile Virtual Network Aggregator services in 2015, reflecting the phone traffic generated by the customers of Noitel Italia Srl, Ringo Mobile SpA and Linkem SpA. Mobile Communications services generated revenue of 578 thousand, essentially from the activities of Acotel SpA. Note 2 Raw materials, semi-finished and finished products This item, amounting to 404 thousand ( 458 thousand in 2014), primarily relates to the purchase of materials for the production of devices used in providing Acotel NET s services. 55

60 Note 3 External services The cost of external services totals 31,552 thousand, representing a decrease compared with A breakdown of the service costs is shown below: ( 000) Increase/ (Decrease) Interconnection and billing services 14,798 18,884 (4,086) Advertising 7,504 7,932 (428) Professional consultants 1,942 2,062 (120) Telecommunications services 1,257-1,257 Connectivity and sundry utilities 1, Content providers 1,238 2,018 (780) Remuneration of corporate officers (38) Routine maintenance Travel expenses (29) Auditors' fees Purchase of SMS packages Outsourcing Call centre (40) Insurance (7) Regulatory compliance Other minor expenses 922 1,002 (80) Total 31,552 35,413 (3,861) The decrease primarily reflects a reduction in the cost of interconnection and billing services, linked to the performance of Digital Entertainment revenue, a decrease in advertising expenses and a reduction in the cost of content provision. The cost telecommunications services, totalling 1,257 thousand, regards the cost of interconnection and mobile termination charges for calls originating from the MVNOs enabled during 2015 and made to the customers of other operators, in addition to the cost of using Telecom Italia s network infrastructure in providing MVNA services. Remuneration paid to corporate officers, totalling 810 thousand, includes 681 thousand paid to the Directors and 129 thousand paid to the Statutory Auditors. Note 4 Rentals and leases Rentals and leases amount to 1,163 thousand ( 1,184 thousand in 2014) and primarily include rentals on offices occupied by Group companies. Note 5 Staff costs Staff costs include: 56

61 ( 000) Increase/ (Decrease) Salaries and wages 9,524 9,594 (70) Social security contributions 2,094 2,103 (9) Staff termination benefits Finance costs (64) (80) 16 Other costs (48) Total 12,875 12,941 (66) The of Noverca Italia Srl s staff costs for 2015 and, for the purposes of comparison, for the previous year attributable to the liquidation have been reclassified to Profit/(Loss) from assets held for sale and discontinued operations in the income statement. The related costs amount to 760 thousand and 1,421 thousand, respectively, as described in section 4.7 of these consolidated financial statements. Other staff costs include charges incurred in relation to professional training and refresher courses, prevention and health care expenses, and contributions for defined-contribution pension plans for the staff of foreign subsidiaries, information about which is provided in Note 28. Finance costs on staff termination benefits are calculated on the basis of the method described in full in the following Note 22, to which reference should be made. This cost item is recognised in finance costs (Note 9). The geographical distribution of the Group s staff is shown in the table below: 31 December December 2014 Italy Brazil USA Spain 6 13 India 3 - Total The number of staff by category at 31 December 2015, compared with the average number for 2015 and 2014, is reported in the following table. At 31 December 2015 Average 2015 Average 2014 Managers Supervisors White- and blue-collar staff Total During 2015, the interests in the subsidiaries, Flycell Telekomunikasyon Hizmetler AS and Info2cell.com FZ-LLC were sold. As a result, in order to provide a like-for-like basis for 57

62 comparison, the figures shown above regarding the geographical distribution of the Group s staff and the breakdown of staff by category for 2015 and 2014 exclude the staff of these companies. For the purposes of full disclosure, the total workforce employed by Flycell Telekomunikasyon Hizmetler AS and Info2cell.com FZ-LLC at 31 December 2014 amounted to 61. The figures shown above regarding the geographical distribution of the Group s staff and the breakdown of staff by category also include the staff of Noverca Italia Srl at 31 December 2015 and 2014 included in the liquidation, amounting to 14 and 30, respectively. Note 6 - Amortisation and depreciation Details of the amortisation and depreciation of assets are given below: ( 000) Increase/ (Decrease) Amortisation of non-current intangible assets Depreciation of property, plant and equipment 1,358 2,329 (971) Total 1,626 2,495 (869) Amortisation of intangible assets mainly refers to amortisation of the software and licences utilised by various Group companies, and the expenses paid to Telecom Italia in return for preparation and configuration of the technology infrastructure used in delivering MVNA services. Depreciation of property, plant and equipment primarily refers to depreciation of the telecommunications equipment and infrastructure used by Group companies. Note 7 - Capitalised internal costs Capitalised internal costs, totalling 1,481 thousand ( 542 thousand in 2014), essentially relate to staff employed in the development of software and new functions used in delivering NET, Interactive advertising and MVNA services and for the devices used in the provision of energy management services, which are distributed to Acotel s customers on free loan. Note 8 Other costs Other costs of 1,480 thousand ( 1,263 thousand in 2014) include 537 thousand in indirect taxes payable by Acotel do Brasil and Acotel Interactive LTDA in compliance with Brazilian legislation, and 329 thousand relating to estimated potential liabilities deriving from commitments assumed. The balance includes other general expenses and charges incurred by Group companies in connection with their ordinary activities. Note 9 - Finance income and costs Net finance income of 602 thousand break down as follows: 58

63 ( 000) Increase/ (Decrease) Income from investments Foreign exchange gains Interest income on bank deposits Total finance income 1,387 1, Foreign exchange losses (579) (542) (37) Interest expense and bank charges (112) (41) (71) Other finance costs (94) (123) 30 Total finance costs (785) (706) (79) Total finance income/(costs) Income from investments relates to gains on financial assets held for trading, including 1,096 thousand resulting from the fair value measurement of financial assets held by the Group at 31 December Foreign exchange gains and losses essentially regard realised and unrealised gains and losses generated by Acotel Interactive Inc. and its subsidiaries. Note 10 - Taxation Taxation for 2015 breaks down as follows: ( 000) Increase/ (Decrease) Current tax expense 602 1,658 (1,056) Deferred tax income 1,455 (386) 1,841 Deferred tax expense (211) (235) 24 Total 1,846 1, The total amount of 1,846 thousand includes provisions for taxes on the income of Group companies, recognised in current tax expense. Deferred tax income and expense includes provisions made by Group companies after taking account of the reversal of deferred taxes recognised in previous years. Reconciliation of the statutory rate of IRES (corporation tax) of 27.5% and the effective rate is shown in the following schedule: 59

64 ( 000) 2015 % 2014 % Pre-tax profit/(loss) (9,940) (8,775) Charge calculated at statutory rate of 27.5% of pre-tax result (2,734) 27.5% (2,413) 27.5% Net tax credit/(expense) deriving from losses of Italian subsidiaries not qualifying for recognition of deferred tax assets 1, % 1, % Net tax credit/(expense) on permanent increases and decreases % 1, % Differences between statutory and effective rates for foreign subsidiaries 1, % 1, % Net tax credit/(expense) on assets held for sale and discontinued operations % (2,643) (30.1%) Adjustment of deferred tax assets to reflect recoverable amount % - - Adjustment of tax rate applicable to deferred tax assets % - - Other minor changes (14) (0.1%) (1) - 1, % (1,100) (12.5%) IRAP 6 63 Income tax expense for the year 1,846 (1,037) No account has been taken of IRAP (regional tax) in the comparison between the effective tax charge accounted for in the financial statements and the statutory tax charge as, having a tax base different from pre-tax profit, it would generate a distortion between one period and another. The statutory tax rate was accordingly only determined on the basis of the prevailing statutory rate for IRES (corporation tax) of 27.5%. The taxes relating to the taxable income of foreign subsidiaries were calculated according to the prevailing rates in the respective countries. Deferred tax assets totalling 6 million on tax losses reported by certain investee companies at 31 December 2015 have not been recognised, as they are not currently deemed to qualify for recognition. Specifically, this amount breaks down as follows: approximately 1.6 million in tax losses relating to Noverca Srl prior to joining the tax consolidation arrangement; approximately 4.4 million in tax losses incurred by Noverca Srl, Acotel SpA and AEM Acotel Engineering and Manufacturing SpA in previous years and in 2015 and transferred to Acotel Group SpA under the tax consolidation arrangement. Whilst permitting recovery of the deferred tax assets recognised (note 15), the long-term business plans of the companies included in the tax consolidation arrangement do not, at this time, provide sufficient certainty that the unrecognised tax losses are recoverable within the period covered by the plans ( ). For the purposes of full disclosure, the following table shows changes in tax losses generated by the tax consolidation arrangement in 2015, distinguishing between those accounted for in the Group s deferred tax assets and those not accounted for: 60

65 ( 000) 31 December 2014 Additions Reductions 31 December 2015 Deferred tax assets on tax losses from tax consolidation arrangement accounted for 2,555 - (881) 1,674 Deferred tax assets on tax losses from tax consolidation arrangement not accounted for 4,567 2,353 (920) 6,000 Total 7,122 2,353 (1,571) 7,674 Nota 11 - Earnings per share The calculation of basic and diluted earnings per share is based on the following data: Profit/(Loss) for the year ( 000) (10,671) (19,347) Number of shares ('000) Shares in circulation at beginning of the year 4,114 * 4,114 * Weighted average of treasury shares acquired/sold in the year - - Weighted average of ordinary shares in circulation 4,114 4,114 Basic and diluted earnings per share ** (2.59) (4.70) * : net of treasury shares held at the same date. **: basic earnings per share for 2015 and 2014 coincides with diluted earnings per share as the conditions provided for by IAS 33 do not exist. 61

66 4.10 NOTES TO THE STATEMENT OF FINANCIAL POSITION ASSETS NON-CURRENT ASSETS Note 12 - Property, plant and equipment A breakdown of this item, with a separate column for accumulated depreciation, is as follows: ( 000) Historical cost Accumulated depreciation Impairments Carrying amount at 31 Dec 2015 Carrying amount at 31 Dec 2014 Land and buildings 3,130 (295) (284) 2,551 3,883 Plant and machinery 16,081 (14,889) - 1,192 2,045 Industrial equipment 1,393 (1,274) Assets under construction and advances Other 3,429 (2,032) - 1,397 1,606 Total 24,055 (18,490) (284) 5,281 7,881 Land and buildings regards a property in Rio de Janeiro purchased by the subsidiary, Acotel do Brasil, in 2011 to house the registered offices and operating headquarters of the company and the Group s other Brazilian companies. An impairment loss of 284 thousand has been recognised in the income statement for 2015 to align the carrying amount of this property at 31 December 2015 with its market value at the same date. Plant and machinery mainly consists of data transmission platforms installed at the various premises occupied by Group companies and used in the provision of value added and MVNA services. Industrial equipment includes the computers used by the Group for development and maintenance of hardware and software products used in the development and management of value added services and in internal operating activities. Furniture and fittings are included in Other assets, together with leasehold improvements. No item of property, plant or equipment was revalued or impaired during the year, with the exception of the property located in Brazil, which was subject to the above-mentioned impairment. Changes in property, plant or equipment during the period are shown in an annex. Reductions in 2015, as regards continuing operations, are due to fully depreciated assets that no longer generate economic benefits for the Group, exchange differences resulting essentially from the fall in the value of the Brazilian real against the euro and the sale of Info2cell.com FZ-LCC. 62

67 Note 13 - Goodwill Goodwill has been allocated to the cash generating units (CGUs) identified within the context of the Group s operating segments. The following table shows the allocation of goodwill: ( 000) Operating segment CGU 31 Dec 2014 Additions Reductions 31 Dec 2015 Acotel Interactive Info2cell 2,627 - (2,627) - Acotel NET AEM Total 2,921 - (2,627) 294 The reduction during the year reflects the sale of the Group s 100% interest in the subsidiary, Info2cell. The Group tests the recoverability of goodwill at least once a year, when preparing the annual financial statements, or more frequently if there are indicators of impairment. Since goodwill does not generate independent cash flows and cannot be sold independently, IAS 36 requires a review of its residual recoverable amount. This is based on the cash flows generated by the cash-generating units (CGUs) to which the goodwill is reasonably allocated. The recoverable amount of a CGU is tested by calculating value in use. Recoverable amounts are determined on the basis of the value in use of the CGU s net invested capital, using the discounted cash flow method. This takes account of the expected operating cash flow for each company, based on budgets prepared by the companies. The main assumptions used by the Group in determining value in use include the discount rate (WACC), the growth rate for sales and expected movements in sales prices and direct costs during the period on which the calculation is based. The adopted discount rate reflects the time value of money and the specific risks connected to each CGU. The discount rate used is the average cost of capital consistent with the flows to be discounted. The after-tax discount rates used, which take account of the specific risks associated with the countries in which each subsidiary operates, are expressed in real terms and are 7.18% for AEM Acotel Engineering and Manufacturing SpA. Future cash flows, expressed in real terms regardless of assumed movements in sales prices and direct costs, are derived from the most recent projections approved by the boards of directors of the companies to whom the CGUs are attributable, namely the companies budgets for 2016 and their long-term business plans for the next 4 years, as prepared by the above companies management. The terminal value, calculated on the basis of the perpetual growth rate, was determined on the basis of an EBITDA equal to the average over the course of the various business plans and maintenance investment equal to the level of amortisation and using a long-term growth rate equal to zero. The value in use resulting from the impairment tests was higher than the respective carrying amounts of the above CGUs, including the goodwill is allocated. In line with the indications set out in Document 4 published jointly by the Bank of Italy, the CONSOB and ISVAP (Italy s insurance industry regulator) on 3 March 2010, a sensitivity analysis was conducted. In the resulting worst-case scenario, assuming a 1 percentage point increase in the 63

68 discount rate, and maintaining the long-term growth rate at zero for all the CGUs, there would be no impairment of the goodwill allocated to the CGUs. On completion of the above tests, the Directors deemed it not necessary to recognise any impairments of goodwill. Note 14 Other intangible assets A breakdown of other intangible assets at 31 December 2015 is as follows: ( 000) Historical cost Accumulated amortisation Carrying amount at 31 Dec 2015 Carrying amount at 31 Dec 2014 Industrial patents and intellectual property rights 1,880 (863) 1, Concessions, licences and similar rights 4,751 (4,266) Intangible assets in process and advances Other 1,068 (1,000) 68 - Total 7,862 (6,129) 1, Industrial patents and intellectual property rights consist of the specific software developed in-house or purchased from third parties, and used by the Group in the provision of ICT services and for the internal information system used by Group companies. The increase with respect to 31 December 2014 is essentially due to the software developed in-house and used in providing Energy and Interactive Advertising services, which has increased by 623 thousand and 444 thousand, respectively. The net carrying amount of concessions, licenses and similar rights primarily includes the expenses paid to Telecom Italia in return for preparation and configuration of the technology infrastructure used by the Group s customers in providing telecommunications services. No revaluations and/or impairments of intangible assets were recognised in Changes in intangible assets during the year are shown in an annex. Reductions in 2015, as regards continuing operations, are due to fully amortised long-term licences that have not been renewed and the sale of Info2cell.com FZ-LCC. Note 15 - Deferred tax assets The following table shows a comparison of the temporary differences that led to the recognition of deferred tax assets: 64

69 ( 000) 31 December December 2014 Taxation Tax Taxation Tax rate rate Deferred tax assets: Adjustment for IAS 19 (revised) % % Refund of IRES for non-deduction of IRAP pursuant to Law Decree 201/ % % Recovery/release of taxed book amortisation and depreciation % - 24% % % Impairment of inventories % % Recovery of taxed provisions for bad debts % % Other % - 24% % % Provision/release taxed Directors' fees % Recovery of provisions % Sub-total Tax losses for the period 1,674 2,555 Tax credits for taxes paid overseas Total 2,054 3,624 Deferred tax assets deriving from tax losses carried forward regard tax losses that may be carried forward for an unlimited period of time, generated by the tax consolidation arrangement. The reduction, compared with the end of the previous year, primarily reflects the adjustment of deferred tax assets to reflect the reduction in the IRES rate (24%) applicable in Italy from 2017 and the impairment of such assets in order to bring the carrying amount into line with the recoverable amount, based on the projections of taxable income contained in the long-term plans prepared by the managements of Group companies. CURRENT ASSETS Note 16 - Inventories The table that follows shows details of inventories, valued using the average weighted cost method, and of provisions made to bring their carrying amounts into line with their estimated realisable values at 31 December 2015: ( 000) Gross value Accumulated impairments Carrying amount at 31 Dec 2015 Carrying amount at 31 Dec 2014 Raw and ancillary materials and consumables 241 (68) Work in progress and semi-finished products 265 (15) Finished products and goods for resale 168 (6) Total 674 (89) Changes in provisions for inventory impairments during the year are shown below: 65

70 ( 000) Balance at 31 December Provisions IFRS 5 adjustment (204) Uses 2015 (13) Balance at 31 December Note 17 Trade receivables These represent trade receivables less provisions for bad debts made to adjust their carrying amount to their estimated realisable value, as shown below: ( 000) 31 December December 2014 Increase/ (Decrease) Trade receivables 5,698 20,576 (14,878) Provisions for bad debts (144) (1,298) 1,154 Total 5,554 19,278 (13,724) Net trade receivables are fully collectable within 12 months. 54.7% of total trade receivables relates to amounts due from the following telephone companies: Telecom Italia (20.6%), TIM Celular SA (10.5%), Bharti (9%), Vodafone (7.2%), Claro Perù (4.1%) and Idea Cellular India (3.3%). Changes in provisions for bad debts during the period are shown below: ( 000) Balance at 31 December ,298 Provisions Uses 2015 (1,197) Balance at 31 December The carrying amount of trade receivables is deemed to approximate to fair value. Note 18 Other current assets At 31 December 2015, these assets total 2,036 thousand and break down as follows: 66

71 ( 000) 31 December December 2014 Increase/ (Decrease) Prepayments to suppliers (155) Current income tax assets VAT credits 20 1,548 (1,528) Other 1,724 1, Total 2,036 3,091 (1,055) Prepayments to suppliers of 171 thousand relate essentially to service contracts and commissions due for advertising activities carried out by third parties, who are remunerated on the basis of the contracts actually signed with final customers, and insurance premiums paid by Group companies in advance. Current income tax assets of 121 thousand regard payments on account for IRAP, less tax payable for the year. The carrying amount of other current assets is deemed to approximate to fair value. Note 19 Current financial assets Current financial assets, amounting to 11,034 thousand, include: ( 000) 31 December December 2014 Increase/ (Decrease) Assets held for trading 9,434 15,463 (6,029) Loans and receivables 1,600 1,600 - Total 11,034 17,063 (6,029) At 31 December 2015, assets held for trading regard: - the Private Select portfolio managed by Unicredit Private Banking and invested in by Acotel Group SpA ( 1,994 thousand)and Acotel SpA ( 2,902 thousand); this fund, which is exposed to limited risk, invests in money market instruments and bonds; - investment funds and money market instruments invested in by the subsidiaries, Acotel Interactive LTDA and Acotel do Brasil, and managed by ItauBank, totalling 1,898 thousand and 2,640 thousand, respectively. Loans and receivables, totalling 1,600 thousand, refer to a fiduciary deposit held by Cordusio società fiduciaria per azioni. This deposit, provided for in the contract for the sale of the 100% interest in Jinny Software Ltd, is an escrow account to be held for 12 months until the current administrative and accounting due diligence process has been completed and to guarantee fulfilment of the seller s other contractual obligations. At 31 December 2015, Acotel Group SpA has made provisions of 329 thousand (Note 24) to reflect the results of the due diligence process at the date of preparation of these financial statements. 67

72 The following table shows a comparison between the carrying amount and fair value of financial instruments at 31 December 2015: ( 000) Carrying amount Fair value Current financial assets: Assets held for trading 8,514 9,434 Loans and receivables 1,600 1,600 Total 10,114 11,034 Current financial liabilities: Bank borrowings 5,965 5,965 Total 5,965 5,965 The following table shows a summary of financial instruments, other than cash and cash equivalents, held by the Group at 31 December 2015: ( 000) Loans and receivables Assets held for trading Fair value through profit or loss Fair value through other comprehensive income Current financial assets: Other financial assets 1, Investment funds - 9,434 1,096 - Trade and other receivables 7, Total 9,190 9,434 1,096 - Current financial liabilities: Bank borrowings 5, Trade and other payables 10, Total 16, The financial instruments listed in the column Fair value through profit or loss are financial assets resulting from the short-term investment of liquidity. Note 20 - Cash and cash equivalents This item includes bank deposits of 6,164 thousand and cash and notes in hand of 8 thousand. At the end of last year these items amounted to 11,535 thousand and 13 thousand, respectively. Bank deposits represent the closing balances of Group companies bank current accounts at the end of the year. 68

73 LIABILITIES AND EQUITY EQUITY Note 21 - Equity attributable to owners of the Parent The statement of changes in equity during the period is included in the financial statements. At 31 December 2015, the fully paid-up share capital of Acotel Group SpA consists of 4,170,000 ordinary shares with a par value of 0.26 each. The Group s objectives in managing its capital essentially relate to the need to support and develop its business activities, in the belief that this will result in the creation of value for shareholders as a whole and, more in general, safeguard the interests of stakeholders. The share premium reserve amounts to 38,899 thousand and derives primarily from the capital increases carried out in preparation for the stock market flotation. At 31 December 2015, treasury shares acquired by Acotel Group SpA were recorded as a reduction of consolidated equity, totalling 871 thousand. These shares have a par value of 14,671, representing 1.35% of the share capital. This refers to 56,425 Acotel Group SpA ordinary shares, of which 28,320 were acquired in execution of the authority granted by the General Meeting of 24 April 2002 and 28,105, net of sales to date, in execution of the authority granted by the General Meeting of 30 April The average purchase price of these shares was 15.44; at 31 December 2015, the share price stood at Other Group companies do not possess Acotel Group SpA shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold shares during the year. At 31 December 2015, Acotel Group SpA does not possess shares or units of parents, either directly or through fiduciary companies or proxies, nor has it acquired or sold such shares or units during the year. The cash flow hedge and currency translation reserve, which has a negative balance of 7,125 thousand, derives from the application of closing exchange rates in the translation of the financial statements of foreign subsidiaries denominated in foreign currencies other than the euro. The movement during the year, amounting to 2,404 thousand, includes 493 thousand resulting from the release to profit or loss of the currency translation reserve of the former subsidiary, Info2cell, which was sold on 30 September 2015, and 2,897 thousand relating to translation of the financial statements of overseas subsidiaries denominated in currencies other than the euro. Assets and liabilities have been translated into euros using the related closing exchange rates at 31 December 2015, while components of equity are translated on the basis of historical exchange rates. Income statement items were translated utilising average exchange rates for The following exchange rates have been used: 69

74 Company Currency Exchange rate at 31 Dec 2015 Average exchange rate 2015 Acotel Interactive Inc. USD Bucksense, Inc. USD Acotel do Brasil LTDA BRL Acotel Serviços De Telemedicina Ltda. BRL Acotel Teleçomunicaçāo Ltda. BRL Acotel Interactive LTDA BRL Flycell Argentina SA Ps Acotel SRL Ps Acotel Interactive India Private Limited Rs Other reserves, amounting to 702 thousand, break down as follows: ( 000) 31 December December 2014 Increase/ (Decrease) Legal reserve Profit on sale of treasury shares Other (8.734) (4.426) (4.308) Total (4.308) Accumulated losses amount to 7,605 thousand. Non-controlling interests represent the share of equity attributable to minority shareholders in subsidiaries. At 31 December 2015, non-controlling interests amount to 30 thousand and relate to non-controlling interests in the subsidiaries, Acotel SpA and AEM Acotel Engineering and Manufacturing SpA. The reduction of 140 thousand in equity attributable to non-controlling interest is due to the impact of the sale of the former subsidiary, Info2cell. NON-CURRENT LIABILITIES Note 22 - Provisions for staff termination benefits and other employee benefits At 31 December 2015, this item totals 3,321 thousand and includes accrued amounts due to employees as staff termination benefits, calculated using the actuarial method discussed in the above section on accounting policies, less any advances paid. Changes during the year are shown below: 70

75 ( 000) 31 December December 2014 Opening balance 3,665 2,939 Provisions Finance costs Uses (203) (246) Various withholding taxes (35) (36) Adjustment for IAS 19 (revised) (297) 529 IFRS 5 adjustment (269) - Other changes (7) (28) Closing balance 3,321 3,665 Actuarial gains/(losses) recognised on defined-benefit plans, as accounted for in other consolidated comprehensive income and permanently excluded from profit or loss, are shown below: ( 000) Gains/(Losses) from change in discount rate 246 (568) Gains/(Losses) from experience adjustments (529) Provisions for staff termination benefits shown in the financial statements are calculated by an independent actuary. In application of IAS 19, the Projected Unit Credit Method, based on the following stages, was used to measure staff termination benefits: a projection, for each person employed at the date of measurement, of the staff termination benefits already provided for and future staff termination benefits accruing up to the projected time of payment; determination, for each employee, of probable payments of staff termination benefits that the Company will be obliged to make in the case of the employee leaving due to dismissal, resignation, disability, death or retirement, or on request for an advance; discounting, at the measurement date, each likely payment; re-proportioning, for each employee, the likely and discounted calculations based on seniority at the measurement date with respect to the corresponding projected time of payment. Details of the financial assumptions adopted are as follows: Financial assumptions December 2015 Annual discount rate 2.03% Annual inflation rate 1.92% Annual rate of salary increase Managers 2.50%; Supervisors/Whitecollar/Blue-collar 1.00% 71

76 The Group has a defined-benefit pension plan in Italy. IAS19 (revised) has been applied retrospectively from 1 January As a result, the expected return on the defined-benefit plan assets is not accounted for in profit or loss. Interest on the net defined-benefit plan liability (net of plan assets) is, in contrast, accounted for in profit or loss. Interest is calculated using the discount rate applied in measuring the net pension plan liability or asset. In addition, unvested past service costs cannot any longer be deferred over the period until the benefits become vested. Past service costs are, in contrast, recognised fully in profit or loss at the earlier of the date on which the plan is changed or the date on which the related restructuring costs or termination benefits are recognised. Until 2012, unvested past service costs were accounted for on a straight-line basis over the average period until the benefits became vested. Following adoption of IAS 19 (revised), past service costs are accounted for immediately in profit or loss if the benefits vest immediately with the introduction of, or changes to, the pension plan. In the case of post-employment defined-benefit plans, IAS19 (revised) requires a series of disclosures: the results of a sensitivity analysis of each significant actuarial assumption at the end of the year, showing the effects of reasonably possible changes in actuarial assumptions at that date, in absolute terms; an indication of the contribution payable for the following year; an indication of the average duration of the obligation; expected future payments under the plan. This information is provided below: ( 000) Sensitivity analysis of measurement assumptions, service costs, expected payments and average duration of the plan Inflation Inflation Turnover Service Expected Plan Discount rate Discount rate rate rate rate costs payments duration +0.25% -0.25% +0.25% -0.25% +1% (years) 3,926 3,745 3,721 3,952 3, Note 23 Deferred tax liabilities Deferred tax liabilities, amounting to 240 thousand at 31 December 2015, derive from temporary differences between the carrying amount of assets and liabilities and their tax bases. This item primarily regards the Brazilian subsidiary, Acotel do Brasil. CURRENT LIABILITIES Note 24 Provisions This item, amounting to 329 thousand, regards estimated potential liabilities deriving from commitments assumed. 72

77 Note 25 Current financial liabilities Current financial liabilities, totalling 5,965 thousand, regard the effective use at 31 December 2015 of an overdraft facility granted to Noverca Italia Srl (in liquidation) by Intesa Sanpaolo SpA. The interest on this line of credit is charged and capitalised quarterly at a rate indexed to 1-month EURIBOR, based on the average for the current month, plus 4 percentage points. As described above, the liabilities included in the liquidation of Noverca Italia Srl at 31 December 2015, including the above borrowings, have been reclassified to Liabilities held for sale and discontinued operations, in accordance with IFRS 5 and, therefore, not included in the respective line items in the statement of financial position. Note 26 Trade payables Trade payables, totalling 6,778 thousand, regard payables due to suppliers within 12 months, totalling 5,468 thousand ( 21,533 thousand at 31 December 2014), and advances received from customers by Group companies, totalling 1,310 thousand ( 3,234 thousand at 31 December 2014). The latter refer principally to amounts received from customers and deferred, in accordance with the matching principle, by the subsidiaries, Acotel Interactive Inc. ( 781 thousand) and AEM Acotel Engineering and Manufacturing SpA ( 285 thousand). Note 27 Tax liabilities This item breaks down as follows: ( 000) 31 December December 2014 Increase/ (Decrease) VAT payable Substitute tax payable (45) Income tax payable (20) Total The item includes VAT due from Group companies, withholding taxes payable on behalf of employees and consultants and income taxes less payments on account. Note 28 Other current liabilities This item breaks down as follows: 73

78 ( 000) 31 December December 2014 Increase/ (Decrease) Amounts due to staff 1,726 2,508 (782) Amounts due to pension funds and social security institutions 698 1,293 (595) Amounts due to Directors (77) Other payables (139) Total 3,112 4,705 (1,593) Amounts due to staff essentially refer to pay, bonuses and holiday pay due. Amounts due to pension funds and social security institutions include social security and insurance contributions due, which include the agreed contributions to be made to defined-contribution plans for the employees of overseas subsidiaries. Amounts due to the Directors of Group companies refer to accrued but as yet unpaid remuneration. Other amounts due include statutory auditors fees and other general expenses of Group companies. The carrying amount of trade payables and other payables approximates to fair value NET FUNDS ( 000) 31 December December 2014 Increase/ (Decrease) A. Cash and cash equivalents 6,567 11,548 (4,981) B. Assets held for trading 9,434 15,463 (6,029) C. Liquidity (A + B) 16,001 27,011 (11,010) D. Other current financial receivables 1,600 1,600 - E. Current financial assets (D) 1,600 1,600 - F. Current bank borrowings (5,965) (5,547) (418) G. Current financial liabilities (F) (5,965) (5,547) (418) H. Net funds (C+E+G) 11,636 23,064 (11,428) Net funds at 31 December 2015, amounting to 11,636 thousand, are down 50% on the figure for the end of 2014, reflecting the losses incurred by Group companies during the year. Net funds or net debt, as defined by the CONSOB Ruling of 28 July 2006, represents an alternative performance indicator. At 31 December 2015: - cash and cash equivalents include 395 thousand attributable to Noverca Italia Srl (in liquidation) and classified in discontinued operations in accordance with IFRS 5; 74

79 - provisions of 329 thousand have been made for risks associated with other current financial assets, amounting to 1,600 thousand (further information is provided in Note 24 in these consolidated financial statements; - current financial liabilities regard use of an overdraft facility granted to Noverca Italia Srl (in liquidation) by Intesa Sanpaolo SpA, classified in Liabilities directly associated with discontinued operations in accordance with IFRS ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT Classes of financial instrument The following table shows the breakdown of financial assets and liabilities required by IFRS 7 and IFRS 13 within the context of the categories provided for by IAS 39: ( 000) 31 December 2015 ITEM Assets at FV through profit or loss held for trading Loans and receivables Available-forsale financial assets Carrying amount Note NON-CURRENT ASSETS Other non-current assets Guarantee deposits CURRENT ASSETS Trade receivables Customers - 5,554-5, Escrow accounts - 1,600-1, Current financial assets Other financial assets 9, , Cash and cash equivalents Bank deposits - 6,164-6, Cash and notes in hand TOTAL ASSETS 9,434 13,862-23,296 ( 000) 31 December 2014 ITEM Assets at FV through profit or loss held for trading Loans and receivables Available-forsale financial assets Carrying amount Note NON-CURRENT ASSETS Other non-current assets Guarantee deposits CURRENT ASSETS Trade receivables Customers - 19,278-19, Escrow accounts - 1,600-1, Current financial assets Other financial assets 15, , Cash and cash equivalents Bank deposits - 11,535-11, Cash and notes in hand TOTAL ASSETS 15,463 33,000-48,463 75

80 ( 000) ITEM CURRENT LIABILITIES 31 December 2015 Liabilities at amortised cost Carrying amount Note Trade payables Suppliers 5,468 5, TOTAL LIABILITIES 5,468 5,468 ( 000) ITEM 31 December 2014 Liabilities at amortised cost Carrying amount Note CURRENT LIABILITIES Current financial liabilities Bank borrowings 5,547 5, Trade payables Suppliers 21,533 21, TOTAL LIABILITIES 27,080 27,080 The carrying amounts of trade receivables and payables and financial assets and liabilities accounted for at amortised cost are deemed to approximate to fair value. It should be noted that: - cash and cash equivalents at 31 December 2015 does not include 395 thousand, classified in discontinued operations in accordance with IFRS 5; - current financial liabilities at 31 December 2015 have been reduced by the overdraft facility granted to Noverca Italia Srl (in liquidation) by Intesa Sanpaolo SpA, classified in Liabilities directly associated with discontinued operations in accordance with IFRS 5 and amounting to 5,965 thousand. Fair value hierarchy IFRS 13 requires that financial instruments recognised at fair value in the statement of financial position be classified with reference to a hierarchy of levels, based on the significance of the input used to determine fair value. The standard has introduced the following levels: Level 1 quoted prices in active markets for the asset to be measured; Level 2 inputs other than quoted prices included in Level 1 that are observable for the asset, either directly (as prices) or indirectly (derived from prices); Level 3 inputs for the asset that are not based on observable market data. In Acotel Group SpA s consolidated financial statements, assets measured at fair value are held for trading. At 31 December 2015, these assets, amounting to 9,434 thousand, are entirely classified as Level 1. There were no transfers between levels in

81 Types of financial risk and related hedges As stated in the section of the Directors report on operations dealing with risks and uncertainties, the Group is not exposed to significant financial risks, even though it constantly monitors such risks in order to anticipate any potential negative impact. This section provides qualitative and quantitative disclosures regarding the Acotel Group s exposure to these risks. Credit risk The receivables reported in the Group s financial statements are not exposed to significant credit risk. Net trade receivables have the following maturities: ( 000) Net trade receivables Not due Fallen due within last: Total 0-30 days days days days days over 1 year 31 December ,898 1, , December ,108 1, ,066 19,278 Liquidity risk Liquidity risk occurs when there are difficulties in obtaining the necessary funding for the business on acceptable terms and conditions. As shown in the previous tables regarding financial assets and liabilities, the Acotel Group does not resort to external sources of funding, except to a very limited extent, as it is able to meet its cash requirements from operating cash flow. In 2012, Intesa Sanpaolo SpA granted Noverca Italia SpA an overdraft facility, of which 5,965 thousand had been drawn on at 31 December The interest on this line of credit is charged and capitalised quarterly at a rate indexed to 1-month EURIBOR, based on the average for the current month, plus 4 percentage points. Foreign exchange risk The Group is not exposed to any significant extent to foreign exchange risk, which is mainly limited to the partial difference between the currencies in which receivables and payables are denominated, above all in the case of Acotel Interactive Inc., although the risks are in any event limited by the short space of time between the issue of invoices and collection of the amount due. 77

82 Interest rate risk In view of the fact that the Group is not dependent on external sources of funding, it is not exposed to interest rate risk, other than in respect of the above overdraft facility. This is also true of the Group s liquidity, which is invested in readily convertible financial assets, subject to limited risk and with limited exposure to movements in interest rates. A hypothetical movement of +1% in the interest rates applicable to financial instruments measured at fair value would have a positive impact on the income statement of approximately 51 thousand, whilst a hypothetical movement of -1% in the interest rates would have a negative impact on the income statement of approximately 65 thousand LITIGATION AND CONTINGENCIES The Board of Directors, having obtained the advice of the Group s legal experts, considers that there are no liabilities for which it is necessary that Group companies make provision, other than the provisions shown in these financial statements COMMITMENTS The guarantees granted by the Group consist of the surety of 74 thousand issued to the Bank of Italy, guaranteeing fulfilment of the contract between the Bank and AEM Acotel Engineering and Manufacturing SpA. The residual amount is for sureties of 9 thousand granted in fulfilment of contractual agreements with third parties THIRD-PARTY ASSETS HELD BY THE GROUP Third party assets held by the Group, totalling 2 thousand, relate to equipment loaned to Acotel SpA by the content provider, Il Sole 24 ore, for connection to their information network RELATED PARTY TRANSACTIONS There are no material related party transactions to report in the Acotel Group SpA s consolidated financial statements for the year ended 31 December On 1 January 2011 the specific procedure for related party transactions referred to in the Annual Corporate Governance Report, which is available on the Company s website, come into effect. Purchase of investments from shareholders In 2015, no investments were traded between Acotel Group companies and the Group s shareholders. 78

83 Remuneration of shareholders for membership of corporate bodies Claudio Carnevale earned the following fees during 2015: - 278,000 as Chairman of the Board of Directors and CEO of Acotel Group SpA; - 100,000 as Chairman of the Board of Directors of Acotel SpA; - 50,000 as Chairman of the Board of Directors of AEM Acotel Engineering and Manufacturing SpA. Margherita Argenziano earned the following fees during 2015: - 28,000 as a Director of Acotel Group SpA; - 75,000 as CEO of AEM Acotel Engineering and Manufacturing SpA. Cristian Carnevale earned 8,000 in 2015 as a Director of Acotel Group SpA. At 31 December 2015, outstanding amounts due to the above-named Directors from Group companies total 79,539. Transactions with subsidiaries Details of transactions between Acotel Group SpA and consolidated subsidiaries in 2015 are provided in the following table: TRANSACTIONS WITH OTHER GROUP COMPANIES ( ) Company Receivables Payables Costs Revenue Acotel SpA 830,611 10,443,401 7,375 1,640,995 Acotel Espana S.L. 73, Acotel Interactive Inc. - 3, AEM SpA 420, ,478 4, ,405 Info2cell.com FZ-LLC ,154 Flycell Italia Srl 55,000 2,022,082 12,031 50,000 Bucksense Inc. 44, ,606 Noverca Srl 207, ,064 3, ,893 Noverca Italia Srl 1,412,820 57, ,542 Total 3,044,154 12,889,875 28,176 3,551,030 Transactions with associates At 31 December 2015, the Group does not hold investments in associates. Transactions with other related parties Expenses incurred in 2015 for fees paid to key management personnel totalled approximately 373 thousand, including employee termination benefits of 31 thousand. These expenses do not include 79

84 social security contributions payable by the employer. Remuneration of 526 thousand paid to other related parties refers to the salaries paid to Margherita Argenziano by the subsidiary, Acotel SpA, to Cristian Carnevale by the subsidiary, Acotel Interactive Inc., and to Davide Carnevale by Noverca Srl COMPLIANCE WITH LEGISLATIVE DECREE 196/2003 Acotel Group SpA, Acotel SpA, AEM Acotel Engineering and Manufacturing SpA, Noverca Srl, Noverca Italia Srl (in liquidation) and Flycell Italia Srl have complied with the provisions of Legislative Decree 196/2003 regarding Data Protection OTHER INFORMATION Material non-recurring events and transactions In 2015, Acotel Group SpA sold its 100% interests in the subsidiary, Info2cell.com FZ-LLC, and all this company s subsidiaries, and in Flycell Telekomunikasyon Hizmetler AS, controlled indirectly through Acotel Interactive Inc.. For details of these transactions and the related impact on the income statement, reference should be made to section 4.7 of these consolidated financial statements. Positions or transactions deriving from atypical and/or unusual transactions Pursuant to the CONSOB Ruling of 28 July 2006, it should be noted that no transactions deriving from atypical and/or unusual transactions, as defined by the ruling, occurred during Disclosures pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers The following schedule, prepared pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers, shows the fees payable in 2015 for auditing services and other services provided by the Independent Auditors and associates. ( 000) Type of service Entity providing the service Client Fees 2015* Auditing Reconta Ernst & Young SpA Parent Company 74 Reconta Ernst & Young SpA Subsidiaries 183 Ernst & Young associates Subsidiaries 78 Other services (signature of tax returns) Reconta Ernst & Young SpA Subsidiaries 1 Totale 336 *: Fees are shown net of any expenses charged and gross of any index-linked components. 80

85 ANNEXES TO THE CONSOLIDATED FINANCIAL STATEMENTS 81

86 82

87 PARENT COMPANY S REPORT 83

88 DIRECTORS REPORT ON THE PARENT COMPANY S OPERATIONS 84

89 5.1 FINANCIAL REVIEW In 2015, Acotel Group SpA continued to operate as the holding company for a Group of companies in which each subsidiary is directly involved in the market, whilst the Parent Company coordinates overall objectives and strategy. As all investees are wholly owned, either directly or indirectly, the achievement of Group objectives coincides with maximising the Company s performance. The activities of Acotel Group SpA during 2015 focused on management of the Group s expansion, carrying out its role as a holding company and continuing to assume responsibility for strategic planning, administration, organisation and control. The organisational model adopted ascribes specific functions to each Group company, with the aim of maximising operating synergies and simplifying information flows, thus promoting efficient decision-making, operating and control procedures throughout the organisation. In 2015, Acotel Group SpA completed the sale of its 100% interest in the Middle Eastern subsidiary, Info2cell.com FZ-LLC, and all its subsidiaries to the Indian company, Altruist Technologies Pvt Ltd. The consideration, which was paid in full, was USD5.5 million ( 4,862 thousand), resulting in a loss of 1,765 thousand. Further details are provided in the Directors report on the Group s operations in Acotel Group SpA s consolidated financial statements for the year ended 31 December The following financial review regards Acotel Group SpA s results of operations and financial position at and for the year ended 31 December For this purpose, the Company has prepared separate reclassified statements that are different from those required by the IFRS-EU accounting standards adopted by the Company and included in its financial statements. These reclassified statements present the same amounts shown in the Parent Company s financial statements, to which reference should be made, and contain alternative performance indicators with respect to those derived directly from the financial statements. Management deems these indicators to be useful in assessing the Company s performance and to present the operating and financial performance of the business. In accordance with CESR Recommendation b published on 3 November 2005, the criteria used in computing these indicators are described below. 85

90 RECLASSIFIED INCOME STATEMENT ( ) Increase/ (Decrease) Revenue 1,366,561 2,217,429 (850,868) Other income 2,257,794 1,606, ,403 Total 3,624,355 3,823,820 (199,465) Gross operating profit/(loss) (EBITDA) (937,774) (705,202) (232,572) Amortisation and depreciation (69,950) (85,822) 15,872 Impairment losses/reversal of impairment losses on non-current assets (6,221,487) (5,851,192) (370,295) Operating profit/(loss) (EBIT) (7,229,211) (6,642,216) (586,995) Share of losses of associates and joint ventures (4,090,188) (11,928,541) 7,838,353 Net finance income/(costs) 322,185 32, ,514 PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS (10,997,214) (18,538,086) 7,540,872 Taxation (1,016,329) 2,743,174 (3,759,503) PROFIT/(LOSS) FROM CONTINUING OPERATIONS (12,013,543) (15,794,912) 3,781,369 Profit/(Loss) from discontinued operations (1,765,471) (4,933,500) 3,168,029 PROFIT/(LOSS) FOR THE YEAR (13,779,014) (20,728,412) 6,949,398 Acotel Group SpA s income statement for 2015 reports an improved result from continuing operations and a reduced loss for the year, despite a 38% decline in revenue compared with the previous year. The latter, amounting to 1,367 thousand, was almost entirely generated from the services the Company supplies to its subsidiary, Acotel SpA, as a Service Provider. This consists of the acquisition, processing, management and transmission of data using its proprietary ICT platform. The decrease in turnover, compared with the previous year, is the result of the reduction in turnover reported by Acotel SpA in 2015, given that the companies trading relations envisage the payment of fees partially linked to the performance of the subsidiary s business. Other income of 2,258 thousand primarily represents charges billed to the Group s other Italian companies for their share of administrative costs, lease expense and related expenses, in addition to the services provided to the subsidiaries. 86

91 The Company reports a gross operating loss (EBITDA) of 938 thousand, marking a deterioration of 33% compared with the previous year. EBITDA corresponds to operating profit or loss before provisions, depreciation and amortisation, impairments losses and reversals of impairment losses on assets. EBITDA so defined is a measure used by management to monitor and assess the Company s operating performance and is not an accounting measure envisaged by IFRS. It should not, therefore, be considered an alternative measure of the Company s operating performance. Given that the composition of EBITDA is not governed by the relevant accounting standards, the measurement criteria applied by the Company may not be consistent with those adopted by other companies and may, therefore, not be comparable. After amortisation and depreciation ( 70 thousand) and impairments of non-current assets ( 6,221 thousand), the Company reports an operating loss (EBIT) of 7,229 thousand, compared with a loss of 6,642 thousand for the previous year. After the Company s share of the losses of associates and joint ventures ( 4,090 thousand), net finance income ( 322 thousand), taxation ( 1,016 thousand), the loss from discontinued operations ( 1,765 thousand), the loss for 2015 amounts to 13,779 thousand. The share of the loss of associates and joint ventures regards provisions for future charges that the Company may incur following completion of the process of liquidating Noverca Italia Srl ( 19 thousand), and the need to cover losses incurred by the subsidiaries, Noverca Srl ( 2,071 thousand) and AEM Acotel Engineering and Manufacturing SpA ( 2,000 thousand). 87

92 RECLASSIFIED STATEMENT OF FINANCIAL POSITION ( ) 31 December December 2014 Increase/ (Decrease) Non-current assets Property, plant and equipment 205, ,666 43,164 Intangible assets 39,159 8,468 30,691 Non-current financial assets 39,990,497 52,362,174 (12,371,677) Other assets 1,833,885 2,857,746 (1,023,861) TOTAL NON-CURRENT ASSETS 42,069,371 55,391,054 (13,321,683) Net current assets Trade receivables 557, ,375 (264,304) Other current assets 1,570,581 1,847,643 (277,062) Trade payables (627,946) (896,350) 268,404 Other current liabilities (21,332,338) (22,874,011) 1,541,673 TOTAL NET CURRENT ASSETS (19,832,632) (21,101,343) 1,268,711 PROVISIONS FOR STAFF TERMINATION BENEFITS (797,620) (737,935) (59,685) NON-CURRENT PROVISIONS (357,106) (354,810) (2,296) NET INVESTED CAPITAL 21,082,013 33,196,966 (12,114,953) Equity: Share capital 1,084,200 1,084,200 - Reserves and retained earnings/ (accumulated losses) 37,771,663 58,473,512 (20,701,849) Profit/(Loss) for the year (13,779,014) (20,728,412) 6,949,398 TOTAL EQUITY 25,076,849 38,829,300 (13,752,451) Net cash and cash equivalents: Current financial assets (3,593,705) (6,531,419) 2,937,714 Cash and cash equivalents (1,248,611) (178,738) (1,069,873) Current financial receivables (1,174,602) (932,227) (242,375) Current borrowings 2,022,082 2,010,050 12,032 (3,994,836) (5,632,334) 1,637,498 NET FUNDS (3,994,836) (5,632,334) 1,637,498 TOTAL EQUITY AND NET FUNDS 21,082,013 33,196,966 (12,114,953) Net invested capital at 31 December 2015, amounting to 21,082 thousand, consists of non-current assets of 42,069 thousand, net current liabilities of 19,833 thousand, provisions for employee termination benefits of 798 thousand and other non-current provisions of 357 thousand. Net invested capital is financed by equity of 25,077 thousand and net funds of 3,995 thousand. A detailed analysis of changes in the principal components of the statement of financial position shows that: 88

93 the reduction in non-current assets is essentially due to the sale of the 100% interest in Info2cell and partial impairment of the investments in Acotel Interactive Inc. and Acotel SpA; changes in net current liabilities primarily reflect the reduction in the Company s business volumes and the use of provisions made at 31 December 2014 to cover the losses incurred by Noverca Srl; the change in equity essentially reflects the result for the year; net funds, totalling 3,995 thousand at 31 December 2015, are down on the figure for 31 December SOURCES OF FUNDS Acotel Group SpA does not resort to external sources of funding, other than to a limited extent, being able to finance investment from operating cash flow and its own funds. The Company s net funds at 31 December 2015 total 3,995 thousand. 5.3 RESEARCH AND INNOVATION No research and development costs have been capitalised. 5.4 HUMAN RESOURCES At 31 December 2015, Acotel Group SpA employs 19 people, compared with 18 at the end of The Company recruited 4 new members of staff during the year, whilst 3 people left its employ. The following tables show key information about the Company s staff at 31 December 2015: Staff by category at 31 December 2015 Category Number % Managers 3 16% Supervisors 9 47% White- and blue-collar staff 7 37% Total % Staff by gender at 31 December 2015 Gender Number % Male 8 42% Female 11 58% Total % 89

94 Staff by age range at 31 December 2015 Age range Number % % % % over 3 16% Total % Staff by length of service at 31 December 2015 Seniority Number % % % over 7 37% Total % Staff by qualification at 31 December 2015 Qualification Number % Degree 10 53% High-school diploma 9 47% Total % 5.5 FINANCIAL RISK MANAGEMENT The measurement and management of Acotel Group SpA s exposure to risk are in line with the Group s policies. The main categories of risk to which the Company is exposed are described below. Credit risk The greatest potential credit risk for Acotel Group SpA at 31 December 2015 consists almost exclusively of outstanding amounts due at year end from subsidiaries. Liquidity risk The Company does not resort to external sources of funding, other than to a limited extent, and is able to meet its cash requirements from operating cash flow. Acotel Group SpA operates as the holding company for a Group of companies and is responsible for coordinating the Group s overall objectives and strategy. The Company s financial position depends on that of the Group which is, in turn, influenced by a range of factors, including the achievement of objectives and the general state of the economy, the financial markets and the sectors in which the Group operates. The Group has prepared a financial plan designed to ensure a return to profit and to financial stability in the medium to long term, which is closely linked to general market conditions and, above all, to the Group s ability to achieve the targets set out in the plan. Further information is provided in section

95 Foreign exchange risk At 31 December 2015, Acotel Group SpA has no significant amounts payable to and receivable from third parties, nor significant financial instruments exposed to foreign exchange risk. Interest rate risk As the Company does not rely on external sources of funding, the Company s only exposure to interest rate risk is limited to intercompany loans. 5.6 STRENGTHS AND RESOURCES NOT REFLECTED IN THE FINANCIAL STATEMENTS This section provides a brief summary of the strengths that Acotel Group SpA considers it has and that are not sufficiently evident from the data in the financial statements. Technological independence: most of the technology infrastructure used by the Company is developed in-house. Stable shareholder structure: 57.4% of the share capital of Acotel Group SpA is held by the founder and members of his family. This concentration of ownership ensures continuity in the management of the Company, which aims to create value over the medium/long-term. Financial independence: as previously indicated, the Company, both through its operating activities and shrewd management of its financial resources acquired as a result of the flotation, has always had the necessary financial resources to finance its development without having to resort to external sources of funds, other than to a limited extent. 5.7 INTERCOMPANY AND RELATED PARTY TRANSACTIONS There are no related party transactions, including intercompany transactions, that may be categorised as atypical or unusual, given that any such transactions form part of the normal activities of Group companies. These transactions are conducted on an arm s length basis, taking account of the type of services supplied. Disclosures regarding related party transactions are provided in section 7.14 of the notes to the financial statements. 5.8 OWNERSHIP STRUCTURE AND CORPORATE GOVERNANCE Disclosures on the ownership structure required by art. 123-bis of the Consolidated Finance Act are contained in a specific section of the Corporate Governance Report, which the Company makes available in the Investor relations section of its corporate website, 91

96 5.9 OTHER INFORMATION At 31 December 2015, the fully paid-up share capital of Acotel Group SpA consists of 4,170,000 ordinary shares with a par value of 0.26 each. At the same date the Company holds 56,425 treasury shares, which are accounted for as an 871 thousand reduction in equity, representing the average cost of per share and a total par value of 14,671. At 31 December 2015, Acotel Group SpA does not possess shares or units of holding companies, either directly or through fiduciary companies or proxies, nor has it acquired or sold such shares or units during the period. Acotel Group SpA, as the Parent Company, Acotel SpA, AEM Acotel Engineering and Manufacturing SpA, Noverca Srl and Flycell Italia Srl have adopted the tax consolidation arrangement introduced by articles of 117 and 129 of the Consolidated Act and the Ministerial Decree of 9 June The Company has complied with the provisions of Legislative Decree 196/2003 regarding Data Protection, and has prepared and updated the Data Protection Planning Document. At 31 December 2015, the Company has not established any branch offices EVENTS AFTER 31 DECEMBER 2015 There have not been any material events between 1 January 2016 and the date of the Board of Directors meeting that formally prepared these financial statements. The agenda for the Board of Directors meeting to approve Acotel Group SpA s financial statements for the year ended 31 December 2015 also calls on the Directors to deliberate on the merger of the subsidiary, Acotel SpA, with and into Acotel Group SpA. This transaction aims to simplify operating relations between the two companies, given that, in conducting its business, the latter uses the platform developed and operated by the former. The merger will also bring savings, in terms of both human and financial resources, and result in the need to prepare just one set of financial statements OUTLOOK In the light of the above, in 2016 Acotel Group SpA will continue to carry out its management role within the Group, providing the other companies with strategic guidelines, coordinating their activities and supplying operating and financial support. Reference should be made to section 1.14 of the report on operations accompanying the consolidated financial statements for a description of the key actions taken by the Directors to enable the Company s subsidiaries to return to profit. 92

97 5.12 PROPOSED APPROPRIATION OF THE LOSS FOR THE YEAR The Board of Directors proposes to use the share premium reserve to cover the loss of 13,779,014 incurred in SHAREHOLDER RESOLUTIONS The Annual General Meeting of shareholders held on 22 April 2016 voted to use the share premium reserve to cover the loss of 13,779,014 incurred in

98 PARENT COMPANY S FINANCIAL STATEMENTS 94

99 INCOME STATEMENT ( ) Note Revenue: 1 1,366,561 2,217,429 - from related parties 1,343,344 2,217,429 - other 23,217 - Other income: 2 2,257,794 1,606,391 - from related parties 2,199,608 1,287,381 - other 58, ,010 Total 3,624,355 3,823,820 Raw materials (6,528) (11,728) External services: 3 (1,625,376) (1,897,362) - rendered by related parties (16,144) (15,948) - other (1,609,232) (1,881,414) Rentals and leases 4 (740,111) (746,394) Staff costs 5 (1,755,560) (1,893,953) Amortisation and depreciation 6 (69,950) (85,822) Impairment losses/reversal of impairment losses on noncurrent assets 7 (6,221,487) (5,851,192) Other costs 8 (434,554) 20,415 OPERATING PROFIT/(LOSS) (EBIT) (7,229,211) (6,642,216) Share of losses of investees 9 (4,090,188) (11,928,541) Finance income: ,615 98,021 - from related parties 8,078 7,333 - other 363,537 90,688 Finance costs 10 (49,430) (65,350) - due to related parties (12,032) (21,313) - other (37,398) (44,037) PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS (10,997,214) (18,538,086) Taxation 11 (1,016,329) 2,743,174 PROFIT/(LOSS) FROM CONTINUING OPERATIONS (12,013,543) (15,794,912) Profit/(Loss) from discontinued operations 12 (1,765,471) (4,933,500) PROFIT/(LOSS) FOR THE YEAR (13,779,014) (20,728,412) 95

100 STATEMENT OF COMPREHENSIVE INCOME ( ) Note Profit/(Loss) for the year (13,779,014) (20,728,412) Other comprehensive income/(losses): Other components of comprehensive income that will be subsequently reclassified in profit or loss for the period, after tax Total other components of comprehensive income that will be - - subsequently reclassified in profit or loss for the period, after tax - - Other components of comprehensive income that will not be subsequently reclassified in profit or loss for the period, after tax Actuarial gains/(losses) on defined-benefit plans 23 36,638 (78,371) Tax credit/(expense) on other gains/(losses) Total other components of comprehensive income that will not (10,075) 21,552 be subsequently reclassified in profit or loss for the period, after tax 26,563 (56,819) Total comprehensive income/(loss) for the year (13,752,451) (20,785,231) 96

101 STATEMENT OF FINANCIAL POSITION ASSETS ( ) Note 31 December December 2014 Non-current assets: Property, plant and equipment , ,666 Intangible assets 14 39,159 8,468 Investments: 15 39,990,497 52,362,174 - in related parties 39,990,497 52,362,174 Other non-current assets 3,281 3,384 Deferred tax assets 16 1,830,604 2,854,362 TOTAL NON-CURRENT ASSETS 42,069,371 55,391,054 Current assets: Trade receivables: , ,375 - due from related parties 511, ,180 - other 45,548 28,195 Other current assets: 18 1,570,581 1,847,643 - due from related parties 1,358,029 1,298,172 - other 212, ,471 Financial receivables: 19 1,174, ,227 - due from related parties 1,174, ,227 Current financial assets 20 3,593,705 6,531,419 Cash and cash equivalents 21 1,248, ,738 TOTAL CURRENT ASSETS 8,144,570 10,311,402 NON-CURRENT ASSETS HELD FOR SALE - - TOTAL ASSETS 50,213,941 65,702,456 97

102 STATEMENT OF FINANCIAL POSITION LIABILITIES AND EQUITY ( ) Note 31 December December 2014 Equity: Share capital 1,084,200 1,084,200 Share premium reserve 38,899,341 55,106,013 - Treasury shares (871,307) (871,307) Other reserves (256,371) 4,238,806 Profit/(Loss) for the year (13,779,014) (20,728,412) TOTAL EQUITY 22 25,076,849 38,829,300 Non-current liabilities: Provisions for staff termination benefits , ,935 Provisions , ,770 - for liabilities attributable to related parties 322, ,770 Deferred tax liabilities 34,336 32,040 TOTAL NON-CURRENT LIABILITIES 1,154,726 1,092,745 Current liabilities: Provisions 24 9,248,737 11,054,172 - for liabilities attributable to related parties 8,919,584 11,054,172 - other 329,153 - Borrowings: 25 2,022,082 2,010,050 - from related parties 2,022,082 2,010,050 Trade payables , ,350 Tax liabilities ,228 88,099 Other current liabilities: 28 11,737,373 11,731,740 - due to related parties 10,867,793 10,722,702 - other 869,580 1,009,038 TOTAL CURRENT LIABILITIES 23,982,366 25,780,411 LIABILITIES DIRECTLY ASSOCIATED WITH NON- CURRENT ASSETS HELD FOR SALE - - TOTAL LIABILITIES 25,137,092 26,873,156 TOTAL LIABILITIES AND EQUITY 50,213,941 65,702,456 98

103 STATEMENT OF CHANGES IN EQUITY ( ) Share capital Share premium reserve - Treasury shares Other reserves Reserves and retained earnings Profit for the year TOTAL Balances at 1 January ,084,200 55,106,013 (871,307) 8,993,021 2,712,188 (7,409,584) 59,614,531 Appropriation of net profit for 2013 (4,697,396) (2,712,188) 7,409,584 - Comprehensive income/(loss) for 2014 (56,819) (20,728,412) (20,785,231) Balances at 31 December ,084,200 55,106,013 (871,307) 4,238,806 - (20,728,412) 38,829,300 Appropriation of net profit for 2014 (16,206,672) (4,521,740) 20,728,412 - Comprehensive income/(loss) for ,563 (13,779,014) (13,752,451) Balances at 31 December ,084,200 38,899,341 (871,307) (256,371) - (13,779,014) 25,076,849 99

104 STATEMENT OF CASH FLOWS ( ) Note A. NET CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,710, ,248 B. CASH FLOWS FROM (FOR) OPERATING ACTIVITIES (2,441,812) (5,457,960) Cash flows from operating activities before changes in working capital (1,053,268) (2,580,525) Profit/(Loss) for the year (13,779,014) (20,728,412) Profit/(Loss) from discontinued operations 12 1,765,471 4,933,500 Amortisation and depreciation 6 69,950 85,822 Cost of covering losses incurred by Noverca Italia Srl 18,841 8,900,743 Cost of covering losses incurred by Noverca Srl 1,569,449 2,153,429 Cost of covering losses incurred by AEM SpA 1,639, ,369 Impairment of investment in Acotel SpA 7 1,641,487 - Impairment of investment in Acotel do Brasil Ltda - 3,135,696 Impairment of investment in Acotel Interactive Inc. 7 4,580,000 2,715,496 Dividends received - - Net change in provisions for staff termination benefits 96,323 (75,175) Net change in provisions ,153 (4,574,859) - related parties - (4,393,588) - other 329,153 (181,271) Net change in current tax liabilities - (87,531) Net change in deferred tax liabilities 1,015,979 86,397 (Increase) / Decrease in receivables (1,383,902) 158,854 - due from related parties (1,703,468) 499,102 - other 319,566 (340,248) Increase / (Decrease) in payables (4,642) (3,036,289) - due to related parties 145,091 (3,146,565) - other (149,733) 110,276 C. CASH FLOW FROM (FOR) INVESTING ACTIVITIES 4,241,017 12,460,746 (Purchases)/disposals of fixed assets: - Intangible assets (35,018) (1,968) - Property, plant and equipment (108,787) (47,403) - Financial assets 4,384,822 12,510,117 - related parties 4,384,719 12,510,117 - other D. CASH FLOW FROM (FOR) FINANCING ACTIVITIES (3,667,046) (733,877) Net loans received 12, ,998 - from related parties 12, ,998 Net loans provided (3,679,078) (904,875) - to related parties (3,679,078) (904,875) E. CASH FLOW FOR THE YEAR (B+C+D) (1,867,841) 6,268,909 F. NET CASH AND CASH EQUIVALENTS AT END OF YEAR (A+E) 4,842,316 6,710,

105 NOTES TO THE PARENT COMPANY S FINANCIAL STATEMENTS 101

106 7.1 CORPORATE INFORMATION Acotel Group SpA is an entity incorporated in accordance with Italian law, and is the company that directly and indirectly owns the investments in the operating companies that form part of the Acotel Group. The Company s registered office and operational headquarters are in Rome, Italy. The duration of the Company, in accordance with its articles of association, is to 31 December The financial statements of Acotel Group SpA have been drawn up in euros, the Company s functional currency. Acotel Group SpA has also prepared consolidated financial statements for the Acotel Group for the year ended 31 December The financial statements of Acotel Group SpA for the year ended 31 December 2015 were drawn up by the Board of Directors on 14 March 2016, when the Board authorised the Chairman and CEO to make any necessary changes to the form of the financial statements prior to their publication. 7.2 ACCOUNTING STANDARDS USED IN PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of Acotel Group SpA for the year ended 31 December 2015 have been prepared in accordance with the international financial reporting standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union, and in force at the date of preparation of the financial statements. The financial statements also comply with the measures issued in implementation of art. 9 of Legislative Decree 38/2005. IFRS also includes all the revised International Accounting Standards (IAS) and all the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), which was previously called the Standing Interpretations Committee (SIC). In compliance with European Regulation no of 19 July 2002 the Acotel Group adopted the International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) in the preparation of its consolidated financial statements as of In compliance with Italian legislation that transposed the above regulations, the separate financial statements of the Parent Company, Acotel Group SpA, have been prepared in accordance with these standards from Accounting standards and interpretations effective as of 1 January 2015 The new standards and interpretations regard: IFIC 21 Levies; Changes to IFRS 1 First-Time Adoption of IFRS; 102

107 Changes to IFRS 3 Business Combinations; Changes to IFRS 13 Fair Value Measurement; Changes to IAS 40 Investment Property. Adoption of these standards and interpretations has not resulted in changes to the basis of preparation for Acotel Group SpA s financial statements. New standards and interpretations not yet effective This section shows a list of standards, interpretations and updates to previously published standards, or to those yet to be endorsed by the European Union, whose application will be obligatory in future periods, and for which early adoption was either decided against or is not permitted: IFRS 14 Regulatory Deferral Accounts; IFRS 15 Revenues from Contracts with Customers; IFRS 16 Leases; Changes to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations; Changes to IFRS 7 Financial Instruments: Disclosures; Changes to IFRS 9 Financial Instruments; Changes to IFRS 10 Consolidated Financial Statements; Changes to IFRS 11 Joint Arrangements; Changes to IAS 12 Income Taxes; Changes to IAS 16 Property, Plant and Equipment; Changes to IAS 19 Defined Benefit Plans: Employee Contributions; Changes to IAS 27 Consolidated and Separate Financial Statements; Changes to IAS 28 Investments in Associates; The Company is evaluating the eventual impact that adoption of these standards and interpretations may have on the consolidated financial statements. 7.3 BASIS OF PRESENTATION The financial statements were drawn up on the basis of the historical cost principle, with the exception of certain financial instruments measured at fair value, and on a going concern basis. Further information on the latter aspect is provided in section 7.6 below. Acotel Group SpA has prepared the income statement on the basis of the nature of expenses format, taking into account the specific activity carried out. This format is also used for internal reporting. The Company also presents a separate statement of comprehensive income, showing components of income and expense accumulated in equity. The form of presentation used for the statement of financial position distinguishes between current and non-current assets and liabilities, as permitted by IAS 1. Equity is presented in columns that reconcile the opening and closing balance of each item that is part of the schedule. 103

108 The statement of cash flows is prepared in accordance with the indirect method. Finally, with reference to CONSOB Resolution no of 27 July 2006, relating to financial statement presentation, related party disclosures have been included in the income statement, statement of financial position and statement of cash flows. 7.4 ACCOUNTING POLICIES The most significant accounting policies used in the preparation of the financial statements for the year ended 31 December 2015 are as follows: Property, plant and equipment Property, plant and equipment used to manufacture or supply goods and services is recognised at historical cost, inclusive of any incidental expenses and the direct costs incurred to make the asset ready for use. Property, plant and equipment is accounted for less accumulated depreciation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section Impairment of assets below. Depreciation is applied on a straight-line basis each year, based on the estimated useful life of the asset and applying the following rates: ICT platform 50% Specific plant 20% Other plant and machinery 20% Computers 20% Vehicles 25% Furniture, fixtures and fittings 12% Gains and losses on disposals are calculated as the difference between the proceeds from asset sales and the carrying amount of such assets and are recognised in the income statement for the period. Ordinary maintenance and repair costs are recognised in full in the income statement. Improvements designed to increase the future economic benefits of property, plant and equipment are capitalised and depreciated in accordance with their estimated useful lives. Leasehold improvements that qualify for recognition are recognised as property, plant and equipment and depreciated on the basis of the shorter of the residual lease term and the residual useful life of the asset. 104

109 Intangible assets Intangible assets are recognised at purchase or production cost, inclusive of any direct incidental expenses incurred to make the asset ready for use. These assets are accounted for less accumulated amortisation and any impairments, determined in accordance with the criteria provided for by IAS 36 and described in the section Impairment of assets below. Intangible assets are amortised systematically, as of the moment the asset is ready for use, on the basis of their expected useful lives. Research and development costs are recognised in full in the income statement. Patents and software are recognised at cost and amortised on a straight-line basis over the residual useful life of the asset. Internally generated intangible assets Internally generated intangible assets deriving from the development of software used by the Company are accounted for in the statement of financial position, only if all the following conditions are met: the asset may be identified; the asset created is likely to generate profits in the future; the asset s development costs may be reliably measured. These intangible assets are amortised on a straight-line basis, as of the date on which the outcome of the project is available for use, based on the estimated useful life of the capitalised costs. When internally generated assets may not be accounted for in the statement of financial position, development costs are recognised in the income statement for the year in which they are incurred. When the internally generated intangible assets regard the development of software that may be considered an integral part of the hardware to which it is connected, such assets are treated as items of property, plant and equipment and included in this asset category. Impairment of assets Property, plant and equipment and intangible assets are tested at least once a year to determine whether there are any indications of impairment. In the presence of such indications, the recoverable amount of these assets is estimated to calculate impairment losses. If the recoverable amount of an individual asset cannot be estimated, Acotel Group SpA estimates the recoverable amount of the cash generating unit to which the asset belongs. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. In determining value in use, estimated future cash flows are discounted using a discount rate that reflects the time value of money and the risks specific to the activities of each cash generating unit. As required by Document 4 published jointly by the Bank of Italy, the CONSOB and ISVAP (Italy s insurance industry regulator) on 3 March 2010, the impairment test is submitted for approval by the Company s Board of Directors. 105

110 If the recoverable amount of an asset (or of a cash generating unit) is estimated to be lower than the relevant carrying amount, then it is reduced to such lower recoverable amount. This impairment loss is immediately recognised in the income statement. When an asset is no longer impaired, the carrying amount of the asset (or of the cash generating unit) is increased to reflect the estimated recoverable amount, but only to the extent of the carrying amount of the asset had there not been any impairment loss. The reversal is immediately recognised in the income statement. Investments in subsidiaries Investments in subsidiaries are accounted for in accordance with the cost method, less any impairments pursuant to IAS 36. Impairment losses are recognised in the income statement. The original amount is reinstated in future years if the circumstances that led to the impairment no longer exist. Receivables Receivables are recognised according to their estimated realisable value. Receivables denominated in currencies other than the euro are translated at closing exchange rates. Financial instruments The Company classifies financial assets at the time of purchase based on the following categories: - financial assets at fair value through profit or loss, which include financial assets acquired primarily with the intention of profiting from short-term price movements or designated as such upon initial recognition; - held-to-maturity financial assets, which are financial assets with a fixed maturity and with fixed or determinable payments that the Company has the positive intention and ability to hold to maturity; - loans and receivables, which are financial assets with fixed or determinable payments that are not quoted in an active market and are different from those classified upon initial recognition as financial assets at fair value through profit or loss or as available-for-sale financial assets; - available-for-sale financial assets, which are financial assets not classified in the above categories or that are designated as such upon initial recognition. Financial assets are recognised and derecognised at the trade date and are initially accounted for at cost, including any transaction costs. Subsequent measurement depends on the type of instrument, as follows: - financial assets held for trading are measured at fair value, with any fair value gains or losses recognised in profit or loss for the period; - financial assets that are not listed on an active market, loans and receivables and all held-tomaturity financial assets are accounted for at amortised cost using the effective interest method, less provisions for impairment losses; 106

111 - available-for-sale financial assets are measured at fair value, with any fair value gains or losses recognised in other comprehensive income/(losses) until they are sold or impaired; at this time, the total gains and losses previously recognised in equity are recycled through the income statement for the period. The fair values of financial assets quoted in active markets are calculated on the basis of bid prices quoted on the relevant market. The fair values of financial assets that are not quoted in an active market are estimated on the basis of quoted prices for similar instruments or using appropriate valuation techniques adapted to the specific situation of the issuer. Cash and cash equivalents This item includes cash in hand and at bank, other demand deposits and highly liquid short-term investments that may be readily converted into cash and are not subject to significant risk of changes in value. Non-current assets held for sale and discontinued operations Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered primarily through sale or liquidation, rather than through continued use. This condition is only deemed to have been satisfied when the sale or liquidation is highly probable and the asset or disposal group is available for immediate sale in its present state. Management must be committed to a plan to sell, which must be completed within 12 months of classification as held for sale. Assets held for sale must be excluded from profit or loss from continuing operations and presented in a separate line item in the income statement showing the after-tax profit or loss from discontinued operations. Treasury shares Treasury shares are measured at cost and deducted from equity. Proceeds from the sale, issue or cancellation of treasury shares is accounted for as a change in equity. Employee benefits Under IAS 19, staff termination benefits are classifiable as post-employment benefits equivalent to a defined-benefit plan. The amount accrued under this plan has to be projected to estimate the future liability at the time of termination of employment and then discounted to present value using the projected unit credit method. This is an actuarial method based on demographic and financial assumptions, designed to arrive at a reasonable estimate of the benefits vested in employees for their years of service. Actuarial calculations determine current service cost, reflecting the benefits accrued to employees during the year, which is reported in the income statement as a staff cost, and interest cost, representing the imputed interest that the Company would have paid to lenders had it borrowed an amount equivalent to the benefits. This cost is recognised as a finance cost. 107

112 The unrealised gains and losses arising from changes in actuarial assumptions are recognised in comprehensive income. These components may not be reclassified to profit or loss in a future period. Payables Trade payables are accounted for at face value. Payables denominated in currencies other than the euro are translated at closing exchange rates. Provisions The Company recognises provisions when it has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Changes in estimates are recognised in the income statement in the period in which the change occurs. Revenue Revenue is recognised to the extent that it is probable that economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when payment is received. Revenue is measured at the fair value of the consideration received or receivable, taking into account the contractually agreed terms of payment and excluding taxes and duties. Revenue is recognised upon transfer of the risks and benefits of ownership or upon performance of the service. Revenues from services rendered are recognised on the basis of the actual service performed during the year. Income taxes Current income taxes are recognised on the basis of their estimated taxable income in accordance with tax rates and rules in force, or as approved at the close of the financial year, taking account of applicable exemptions and tax credits. Provisions for tax expense that may result from the transfer of investee companies undistributed earnings are only made if there is an actual expectation that such earnings will be transferred Deferred tax assets and liabilities are calculated on temporary differences between the carrying amount of assets and liabilities and their tax bases, in accordance with the tax rates expected to be in force when the differences will reverse. Current and deferred tax assets and liabilities deriving from transactions whose results are recognised directly in equity are likewise accounted for in equity. In the event of a change in the above tax rates, the carrying amount of deferred tax assets and liabilities is adjusted, and the adjustment recognised in the income statement and equity in line with the underlying transaction. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference can be utilised. 108

113 Since 2004 and for a three-year period, Acotel Group SpA and its Italian subsidiaries, AEM Acotel Engineering and Manufacturing SpA and Acotel SpA, have participated in a form of tax consolidation arrangement introduced by articles of 117 and 128 of the Consolidated Income Tax Act and the Ministerial Decree of 9 June This option which, pursuant to art. 117 of the Act has a duration of three years and is irrevocable, was renewed by the above companies in At the same time, Noverca Srl opted to participate for the same three-year period, subsequently renewed in 2010 and Flycell Italia Srl joined in 2010, renewing its participation in Foreign currency translation Acotel Group SpA s functional and presentation currency is the euro. Foreign currency transactions are translated using the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currency at the end of the reporting period are translated at closing exchange rates. Any foreign exchange differences resulting from the settlement of monetary items or their translation at rates different from those applied at the time of initial recognition are recognised in the income statement. 7.5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Company is required to make estimates and assumptions during preparation of the financial statements and the related notes in application of IFRS. The actual values of the related revenue, costs, assets and liabilities could differ from these estimates. The estimates are mainly used in estimating impairments of investments, amortisation and depreciation and taxation. The estimates and assumptions are periodically reviewed and the effects of any change are immediately reflected in the income statement. In this regard, the situation caused by the current economic and financial crisis has rendered it necessary to make assumptions about future performance that are subject to significant uncertainty. It is, therefore, not impossible that the actual results for the subsequent financial year may differ from any estimates and, as a result, require adjustments to the carrying amounts of the related items. These adjustments, which are currently impossible to estimate or predict, may be material. These financial statements also include deferred tax assets linked to the recognition of tax losses that can be used in future years and components of income deductible in future years. These assets are recognised when the Directors believe it is highly likely that they will be recovered in future years. These deferred tax assets are recoverable to the extent that the future taxable profit indicated in the long-term plans prepared by the Company s management is sufficient to absorb the above tax losses. In any event, if it should become apparent that the Company is no longer able, in future years, to recover all or a part of the deferred tax assets recognised, the resulting adjustment will be accounted for in the income statement for the year in which this occurs. 109

114 7.6 DIRECTORS ASSESSMENT OF COMPLIANCE WITH GOING CONCERN REQUIREMENTS Given that Acotel Group SpA operates as the holding company for a Group of companies for which it is responsible for coordinating individual objectives and strategies, application of the going concern principle depends on the results of an overall going concern assessment of the companies that form the Group. To this end, your attention is drawn to the corresponding section of the notes to the consolidated financial statements for the year ended 31 December 2015, which is included in full below. For the purposes of preparation of these financial statements and in compliance with the requirements of the Italian Civil Code and the relevant accounting standards, the Directors of Acotel Group SpA conducted an assessment of the Group s compliance with the requirements of the going concern principle. This was done in view of the fact that, at the end of 2015, the Group had recorded a consolidated loss of 10,671 thousand (a loss of 19,424 thousand in 2014), resulting primarily from negative EBITDA of 8,632 thousand (negative EBITDA of 6,648 thousand in 2014), reducing consolidated equity to 14,443 thousand ( 27,303 thousand at 31 December 2014), and net funds to 11,636 thousand ( 23,064 thousand at 31 December 2014). The different business areas in which the Acotel Group operates contributed as follows to the consolidated loss for the year ended 31 December 2015: (a) NET business area: (b) INTERACTIVE business area: (c) TLC business area: (d) Taxation and adjustments: (e) Net effect of discontinued operations : Consolidated loss for the year: ( 3,052) thousand ( 2,585) thousand ( 1,818) thousand ( 4,331) thousand 1,115 thousand ( 10,671) thousand This shows how the Group continues to experience operational difficulties across all its businesses, connected with deteriorating conditions in our principal geographical markets and sectors of operation, and the start-up phase in which the recently entered business areas still find themselves and which, to date, are not able to guarantee the Group stable earnings or a stable financial position. As in the previous year, the operating losses incurred primarily reflect the following: in the NET business area, the revenue generated by this business in 2015, amounting to 1,937 thousand ( 1,459 thousand in 2014), including 994 thousand from videosurveillance and 943 thousand from the Energy business, are not yet sufficient to cover fixed costs and make a positive contribution to the Group s consolidated results, despite the positive market response to the services offered (partly thanks to the promotion and marketing of the myenergy service offered by ENI in partnership with the Acotel Group); in the Acotel Interactive business area, the combined effect (i) of the cessation, from 2014, of the activities carried out in the United States, as a result of the introduction of new legislation and regulations by the US government, which have significantly reduced the size of the market for Digital Entertainment services; (ii) the operational difficulties, again caused by new local regulations, encountered in Mexico with regard to the major telecommunications operators and that have resulted in a significant reduction in turnover 110

115 from the second half of 2015; (iii) the Group s withdrawal from the Middle Eastern market following the sale of the subsidiary, Info2cell.com LZ.LLC; (iv) the new, stricter operating rules in the new code of conduct introduced in Italy with effect from January 2014; (v) the impact of the cost of promotions linked to the Interactive division s entry into the Indian market in 2014; (vi) the ban, recently introduced by local regulators, on the distribution of certain services offered in the Ecuadorian and Dominican markets, and finally (vii) the delay in launching the advertising business in which the subsidiary, Bucksense, operates. This business area generated revenue of 33,240 thousand in 2015 ( 41,174 thousand in 2014), with negative EBITDA of 654 thousand in 2014 deteriorating to a negative 2,335 thousand in 2015; in the TLC business areas, the still insufficient scale of the MVNA (Mobile Virtual Network Aggregator) business, which contributed revenue of 1,341 thousand in 2015 ( 531 thousand in 2014). In this area, the Group continues to report operating losses, even if they have been reduced compared with previous years, despite the positive contribution from the sale of Noverca s retail customers to Telecom Italia (this transaction was completed in the first half of 2015, resulting in the Group s discontinuation of its B2C MVNO services). In this regard, the Group is engaged in a range of commercial initiatives designed to acquire new customers, in addition to proceeding to enable existing customers and providing services to previously enabled MVNOs. The consolidated results for 2015 reflect a contraction of the traditional business (Interactive), whilst the new businesses have yet to acquire sufficient scale, resulting in a continuing decline in turnover ( 37,096 thousand in 2015, compared with 43,737 thousand in 2014) and a reduction in net invested capital ( 2,807 thousand at 31 December 2015, compared with 4,239 thousand at 31 December 2014). The operating losses of recent years have also resulted in a reduction in liquidity ( 16,001 thousand at 31 December 2015, compared with 27,011 thousand at 31 December 2014), with a consequent decline in net funds ( 11,636 thousand at 31 December 2015, compared with the 23,064 thousand of 31 December 2014). It should also be noted that, from 2014, the Group has accompanied its restructuring and repositioning with the sale of a number of non-core assets, such as the sale of the group headed by the former Irish subsidiary, Jinny Software (completed on 1 August 2014), the sale of Noverca Italia s retail customers (completed on 8 June 2015), and the more recent sale of the group headed by the former subsidiary, Info2cell.com FZ.LLC (completed on 30 September 2015). These transactions have enabled the Group to raise a part of the funds needed to finance the launch of its new businesses. The above restructuring has yet to be transformed into a stable improvement in the Group s operating performance, demonstrating how indispensable it is for the Group to take steps to ensure a return to profit, at least over the medium to long term. The Directors have, therefore, deemed it necessary to draw up formal plans to ensure a return to profit over the medium to long term, to progressively reverse the current erosion of capital and cash flow and relaunch the Group, based around our new, recently created businesses. Supported by an expert advisor, this has led the Group to draw up a business plan for the period (the Plan ), which was approved on 14 March The Plan sets out details of the steps to be taken in order to ensure growth in revenue and earnings, resulting in a return to profit (expected to occur in 111

116 2018) and the ensuing generation of positive operating cash flow, sufficient to support the traditional business (Interactive) and to fund the investment needed to develop the new businesses. In the Plan, the decline in equity (limiting the Group s ability to absorb further losses) and the reduction in turnover from the traditional business (conducted through the subsidiary, Acotel Interactive), is offset by projections of strong medium- to long-term growth in turnover and earnings from the new businesses (above all the new Energy business, the Net business area, Advertising, the Interactive business area and the MVNA services provided by the TLC business). The Plan thus sets out a path to renewed profitability, with the aim of reversing the recent erosion of the Group s financial resources, and halting the consequent decline in equity. Despite significant uncertainty regarding projected revenue and earnings growth from the new businesses, this will be key to achieving the expected operating and financial performance, conserving the Group s capital and ensuring the Group s renewed ability to generate cash after the outflows seen in past years. In view of the impact of any failure to achieve the targets set out in the Plan, the Directors are aware of the need to closely and carefully monitor results, so as to immediately identify any underperformance that could prevent a return to profit and further erode the Group s capital and finances. In conclusion, based on their assessment of the validity of the actions taken, the Directors have prepared the separate financial statements on a going concern basis, aware of the fact that, in the medium to long term, the application of such a basis is subject to the effective ability of the Company and its investees to fulfil the assumptions and carry out the initiatives contained in the Plan, or to raise fresh capital in the form of equity or debt. 7.7 NOTES TO THE INCOME STATEMENT Note 1 - Revenue Revenue of 1,367 thousand for 2015 is down 38% on the figure for the previous year. Revenue is earned in Italy on the supply to the Italian subsidiary, Acotel SpA, of the data management service carried out via the ICT platform. Note 2 Other income Other income, totalling 2,258 thousand ( 1,606 thousand in 2014), mainly includes the billing of administrative services provided to other Group companies, lease expense and building running costs charged to the subsidiaries, Acotel SpA, AEM Acotel Engineering and Manufacturing SpA, Noverca Italia Srl (in liquidation) and Noverca Srl, and charges for services rendered to Info2cell.com FZ-LLC by Acotel Group SpA. Note 3 External services External service costs, amounting to 1,625 thousand, break down as follows: 112

117 ( ) Increase/ (Decrease) Rendered by related parties 16,144 15, Other 1,609,232 1,881,414 (272,182) Total 1,625,376 1,897,362 (271,986) The cost of external services provided by entities outside the Group, totalling 1,609 thousand, relates to: ( ) Increase/ (Decrease) Remuneration of corporate officers 513, ,200 (48,277) Professional consultants 282, ,959 (186,250) Connectivity and sundry utilities 172, ,505 (12,251) Security 109, , Cleaning 90,643 90,643 - Auditors' fees 77,527 95,901 (18,374) Travel expenses 77,273 91,736 (14,463) Routine maintenance 43,091 56,330 (13,239) Regulatory compliance 25,071 16,601 8,470 Other minor expenses 217, ,431 11,834 Total 1,609,232 1,881,414 (272,182) Remuneration paid to corporate officers, totalling 514 thousand, includes 457 thousand paid to the Directors and 57 thousand to the Statutory Auditors. Note 4 Rentals and leases Lease expense, amounting to 740 thousand ( 746 thousand in 2014), mainly includes rental costs related to the building in Rome in which the Group s Italian companies operate. The annual cost of 710 thousand is partly recovered from the other companies in proportion to the surface areas effectively used. Note 5 Staff costs Staff costs include: 113

118 ( ) Increase/ (Decrease) Salaries and wages 1,255,372 1,350,202 (94,830) Social security contributions 412, ,164 (35,725) Staff termination benefits 91, ,792 (16,275) Finance costs (13,302) (20,928) 7,626 Other costs 9,534 8, Total 1,755,560 1,893,953 (138,393) Finance costs on staff termination benefits are calculated on the basis of the method described in full in the following Note 23. This cost item is recognised in finance costs (Note 10). The number of staff by category at 31 December 2015, compared with the average number for 2015 and 2014, is reported in the following schedule: At 31 Dec 2015 Average 2015 Average 2014 Managers Supervisors White- and blue-collar Total Note 6 Amortisation and depreciation Amortisation of intangible assets amounts to 4 thousand ( 7 thousand in 2014). These assets refer to software licenses used by the Company in providing IT services. Depreciation of property, plant and equipment, totalling 66 thousand ( 79 thousand in 2014), mainly regards the ICT platform and computers. Note 7 Impairment losses/reversal of impairment losses on non-current assets Impairment losses, totalling 6,221 thousand, include 4,580 thousand regarding impairment of the investment in Acotel Interactive Inc. and 1,641 thousand relating to impairment of the investment in Acotel SpA in order to adjust the carrying amount to the recoverable amount. The impairment of the investment in Acotel Interactive Inc. was based on the value resulting from the impairment test carried out on the basis of the most recent business plan for the period prepared by the US subsidiary s management. In the case of Acotel SpA, as described in greater detail in the section, Events after 31 December 2015 in the Directors report on operations, the agenda for the Board of Directors meeting to approve these financial statements will examine the merger of the subsidiary, Acotel SpA, with and into Acotel Group SpA. This transaction did not involve an exchange with a third-party entity or an acquisition for consideration, in that its purpose is to restructure two companies under common control. 114

119 For the above reasons, the Directors have used the predecessor basis of accounting, incorporating the net assets of Acotel SpA at 31 December As a result, measurement of the investment in Acotel Group SpA s separate financial statements has taken into account the losses reported by the acquiree through to 31 December 2015, aligning the carrying amount of the investment with the value of its equity at the same date. This measurement process resulted in a difference of 1,641 thousand deemed not to be recoverable. As a result, at 31 December 2015, the investment is accounted for at an amount of 11,012 thousand. In the case of Acotel Interactive Inc., it should be noted that the loss resulting from the impairment test conducted on the basis of the plan for , compared with the previous year, is essentially due to an expected reduction in turnover in the company s main market. The after-tax rate, expressed in real terms, used to discount the cash flows shown in the long-term plan of Acotel Interactive Inc. is 7.31%. This rate is deemed to represent the company s average cost of capital. The terminal value, which represents the company s operating value at the end of the plans, was calculated without applying any long-term growth rate. Despite their awareness of the fact that achievement of the objectives set out in long-term plans is subject to uncertainty surrounding the development of the businesses, the Directors deem the assumptions used in preparing the plans to be reasonable. They thus believe that there is, at present, no need to recognise a further impairment of the investment in the US company accounted for in the financial statements, in addition to the impairment accounted for at 31 December The Directors are also aware of the need to periodically monitor occurrence of the principal assumptions used in preparing the plans and to conduct the impairment tests, which could lead to a change in the value in use and in the resulting recoverable amounts of the assets accounted for in the financial statements. Note 8 Other costs Other costs of 435 thousand (other income of 20 thousand in 2014), include 329 thousand attributable to estimated potential liabilities resulting from commitments given. The remaining amount includes amounts payable to AMA and general expenses and charges incurred by Group companies in connection with their ordinary activities. Note 9 Share of losses of associates and joint ventures The Company s share of the losses of associates and joint ventures, amounting to 4,090 thousand ( 11,929 thousand in 2014), regards provisions for future charges that the Company may incur following completion of the process of liquidating Noverca Italia Srl ( 19 thousand) and the cost of making up the losses reported by the subsidiary, Noverca Srl ( 2,071 thousand) and AEM Acotel Engineering and Manufacturing SpA ( 2,000 thousand). 115

120 Note 10 - Finance income and costs Net finance income of 322 thousand breaks down as follows: ( ) Increase/ (Decrease) Income from investments 196,999 78, ,878 Foreign exchange gains 166, ,135 Interest income due from related parties 8,078 7, Interest income on bank deposits Other interest income - 12,205 (12,205) Total finance income 371,615 98, ,594 Interest expense and bank charges (16,709) (9,890) (6,819) Interest expense due to related parties (12,032) (21,313) 9,281 Foreign exchange losses (6,512) (2,325) (4,187) Other finance costs (14,177) (31,822) 17,645 Total finance costs (49,430) (65,350) 15,920 Net finance income 322,185 32, ,514 Income from investments is generated by returns on financial assets held for trading, resulting from the fair value measurement of financial assets held by the Company at 31 December Foreign exchange gains primarily regard gains resulting from conversion of a US dollar current account held by the Company in Interest due from related parties mainly regards interest due on loans to Noverca Srl, Noverca Italia Srl (in liquidation), AEM Acotel Engineering and Manufacturing SpA and Acotel Espana. This interest is calculated using the 6-month interbank LIBOR rate plus a spread of 0.5 percentage points. Interest expense due to related parties regards the loan received from Flycell Italia Srl. The interest on these loans is calculated using the 6-month interbank LIBOR rate plus a spread of 0.5 percentage points. Note 11 - Taxation Taxation for 2015 breaks down as follows: ( ) Increase/ (Decrease) Current tax (income)/expense 350 (2,829,571) 2,829,921 Deferred tax income 1,013,683 86, ,241 Deferred tax expense 2,296 (45) 2,341 Total 1,016,329 (2,743,174) 3,759,503 Income tax for the year, amounting to 1,016 thousand, primarily regards the reversal of deferred tax assets accounted for in previous year. 116

121 Reconciliation of the statutory rate of IRES (corporation tax) of 27.5% and the effective rate is shown in the following schedule: ( 000) 2015 % 2014 % Pre-tax profit/(loss) less profit from discontinued operations (10,997) (18,538) Charge calculated at statutory rate of 27.5% of pre-tax profit (3,024) 27.5% (5,098) 27.5% Permanent differences 2, % 4, % Deferred tax assets at statutory rate (27.5%) not recognised on Company's losses % % Temporary differences deductible in future years % % Temporary differences taxable in future years (82) (0.7%) (89) (0.5%) Tax benefit of non-renewal of Noverca Italia Srl's participation in tax consolidation arrangement - - (2,842) (15.3%) Tax benefit of non-renewal of Noverca Italia Srl's participation in tax consolidation arrangement - - (22) (0.1%) Other minor changes (3) (2,864) (15.4%) IRAP - 34 Current tax (income)/expense for the year for Acotel Group SpA - (2,830) No account has been taken of IRAP (regional tax) in the comparison between the effective tax charge accounted for in the financial statements and the statutory tax charge as, having a tax base different from pre-tax profit, it would generate a distortion between one period and another. Deferred tax assets totalling 2.4 million recognised on tax losses incurred primarily by Noverca Srl, Acotel SpA and AEM Acotel Engineering and Manufacturing SpA in 2015 and in previous years and transferred to Acotel Group SpA under the tax consolidation arrangement, have not been recognised. Whilst permitting recovery of the deferred tax assets recognised in 2009 (Note 16), the long-term business plans of the companies included in the tax consolidation arrangement do not, at this time, provide sufficient certainty that the tax losses incurred in subsequent years (from 2016 to 2020) are recoverable within the period covered by the plans. Note 12 Profit/(Loss) from discontinued operations The loss from discontinued operations, totalling 1,765 thousand, was generated by the sale of the 100% interest in Info2cell.com FZ-LLC and all its subsidiaries. 117

122 7.8 NOTES TO THE STATEMENT OF FINANCIAL POSITION ASSETS NON-CURRENT ASSETS Note 13 Property, plant and equipment A breakdown of this item, less accumulated depreciation, is as follows: ( ) Historical cost Accumulated depreciation Carrying amount at 31 Dec 2015 Carrying amount at 31 Dec 2014 Plant and machinery 2,339,205 (2,289,137) 50,068 80,907 Industrial equipment 571,680 (541,877) 29,803 24,396 Assets under construction and advances 6,908-6,908 - Other 495,729 (376,678) 119,051 57,363 Total 3,413,522 (3,207,692) 205, ,666 No item of property, plant or equipment has been revalued or impaired. Plant and machinery primarily includes the ICT platform used to supply value added services. The reduction is due to depreciation for the year. Industrial equipment includes the computers used in the development and management of value added services. The reduction is due to depreciation for the year. Other essentially includes furniture and fittings and leasehold improvements on the Company s registered office, which is leased from a third party. The related lease contract expires in Changes in property, plant and equipment during the year are shown in an annex. Note 14 Intangible assets A breakdown of intangible assets at 31 December 2015 is as follows: 118

123 ( ) Historical cost Accumulated amortisation Carrying amount at 31 Dec 2015 Carrying amount at 31 Dec 2014 Industrial patents and intellectual property rights 579,840 (579,840) - - Concessions, licences and similar rights 106,959 (102,503) 4,456 8,468 Intangible assets in process and advances 34,703-34,703 - Other 6,306 (6,306) - - Total 727,808 (688,649) 39,159 8,468 No intangible assets were revalued or impaired during the year. Industrial patents and intellectual property rights consist of the Company s IT system and the specific software purchased from third parties and used by the Company in the provision of ICT services. Concessions, licenses and similar rights primarily include the cost of the licences for the software used by the Company. Changes in intangible assets during the year are shown in an annex. Note 15 Investments At 31 December 2015, investments total 39,991 thousand ( 52,362 thousand at the end of 2014) and regard investments in subsidiaries. A breakdown of investments and the related changes during the year is shown below: 119

124 ( 000) Company % interest Balance at 31 Dec 2014 Increases Reductions Balance at 31 Dec 2015 Investments in subsidiaries: Acotel SpA 99.9% 12,653 - (1,641) 11,012 (a) Acotel Chile SA 100% Acotel do Brasil Ltda 100% 8, ,615 Acotel Espana SL 100% Acotel Interactive Inc. 100% 13,978 - (4,580) 9,398 AEM Advanced Electronic Microsystems SpA 99.9% 2, ,284 Bucksense Inc. 100% Info2cell.com FZ-LLC 100% 6,150 - (6,150) - Noverca Srl 100% 8, ,655 52,362 39,991 (a) This percentage represents the sum of the 98% interest held directly and the 1.92% interest held by the subsidiary, AEM Acotel Engineering and Manufacturing SpA. The most important corporate transaction that took place in 2015 was the sale of the Company s 100% interest in the subsidiary, Info2cell-com FZ-LLC, and all its subsidiaries. In addition, impairments of the investments in Acotel SpA and Acotel Interactive Inc., amounting to 1,641 thousand and 4,580 thousand, respectively, have been recognised to adjust the related carrying amounts to the recoverable amounts, as previously described. Whilst the impairment of the investment in Acotel Interactive Inc. was based on the value resulting from the impairment test carried out on the basis of the most recent business plan for the period prepared by the US subsidiary s management, in the case of Acotel SpA the recoverable amount was based on the company s equity at 31 December 2015, for the reasons described in Note 7 to these financial statements. The following table shows a complete list of investments with the information required by CONSOB Ruling DEM/ of 28 July 2006: 120

125 ( 000) Company Registered office Share capital Equity at 31 Dec 2015 Profit/(Loss) for 2015 % interest Number of shares Carrying amount Investments in subsidiaries: Acotel SpA Acotel Chile SA Acotel do Brasil Ltda Acotel Espana SL Acotel Interactive Inc. AEM Acotel Engineering and Manufacturing SpA Bucksense Inc. Noverca Srl Noverca Italia Srl (in liquidation) Rome - Via della Valle dei Fontanili 29 Santiago, Chile - Avenida Andres Bello Rio de Janeiro - Rua General Argolo, 33 Madrid - Calle Velazquez 63 Wilmington - Centerville Road 2711 Rome - Via della Valle dei Fontanili 29/37 Nevada S Carson ST STE 4 Rome - Via della Valle dei Fontanili 29/37 Rome - Via della Valle dei Fontanili 29/37 13,000 11,236 (747) 99.9% 24,980,000 11, % 49, ,868 6, % 1,868,231 8, % ,921 (3,753) 100% 100,000 9, (2,219) 99.9% 1,647,634 2, (372) 100% 1, (1,901) 100% 1 8, (8,910) % 1-39,991 Recoverability of the carrying amounts of investments is verified whenever there are indications of impairment. Recoverable amounts are determined on the basis of the value in use of the net invested capital of the investments being tested for impairment, using the discounted cash flow method. This takes account of the expected operating cash flow for each company, based on budgets prepared by the companies. The main assumptions used by the Company in determining value in use include the discount rate (WACC), the growth rate for sales and expected movements in sales prices and direct costs during the period on which the calculation is based. The adopted discount rate reflects the time value of money and the specific risks connected to each subsidiary. The discount rate used is the average cost of capital consistent with the flows to be discounted. The after-tax discount rates used, which take account of the specific risks associated with the countries in which each subsidiary operates, are expressed in real terms and are 7.31% for Acotel Interactive Inc., 7.18% for AEM Acotel Engineering and Manufacturing SpA, 13.48% for Acotel do Brasil Ltda and 7.58% for Noverca Srl. Future cash flows, expressed in real terms regardless of assumed movements in sales prices and direct costs, are derived from the companies budgets for 2016 and their long-term business plans for the next 4 years, as prepared by the above companies management. The terminal value, calculated on the basis of the perpetual growth rate, was determined on the basis of an EBITDA equal to the average over the course of the various business plans and maintenance investment equal to the level of depreciation and amortisation and using a long-term growth rate equal to zero. 121

126 The value in use resulting from the impairment tests was higher than the respective carrying amounts of the above investments. In line with the indications set out in Document 4 published jointly by the Bank of Italy, the CONSOB and ISVAP (Italy s insurance industry regulator) on 3 March 2010, a sensitivity analysis was conducted. In the resulting worst-case scenario, assuming a 1 percentage point increase in the discount rate, there would be no impairment of the carrying amounts of the investments accounted for in Acotel Group SpA s separate financial statements, with the exception of impairment of the investment in Acotel Interactive Inc., for which it would be necessary to recognise a further impairment loss of 212 thousand. Note 16 Deferred tax assets Deferred tax assets of 1,831 thousand arise from temporary differences between the carrying amounts of assets and liabilities and their tax bases, applying the tax rates expected to be in force when the differences will reverse. The following table shows a comparison of the temporary differences that led to the recognition of deferred tax assets: ( ) 31 December December 2014 Taxation Tax rate Taxation Tax rate Deferred tax assets: Refund of IRES for non-deduction of IRAP pursuant to Law Decree 201/ ,420 24% 104, % Adjustment for IAS 19 (revised) 34,186 24% 49, % Recovery/release of taxed book amortisation and depreciation 30, %-24% 76, %-27.5% Recovery of provisions , % Provision/release taxed Directors' fees , % Other % Sub-total 156, ,628 Tax losses carried forward 1,674,424 2,554,734 Total 1,830,604 2,854,362 The reduction, compared with the end of the previous year, primarily reflects the adjustment of deferred tax assets to reflect the reduction in the IRES rate (24%) applicable in Italy from 2017 and the impairment of such assets in order to bring the carrying amount into line with the recoverable amount, based on the projections of taxable income contained in the long-term plans prepared by the managements of the companies participating in the tax consolidation arrangement, in which Acotel Group SpA takes part. 122

127 CURRENT ASSETS Note 17 - Trade receivables This item breaks down as follows at 31 December 2015: ( ) 31 December December 2014 Increase/ (Decrease) Due from related parties 511, ,180 (281,657) Other 45,548 28,195 17,353 Total 557, ,375 (264,304) Trade receivables due from related parties, amounting to 512 thousand, are due from Acotel SpA in relation to services provided via the ICT platform, which the subsidiary uses for its activities as a service provider. The decrease compared with 31 December 2014 is due to a reduction in turnover in the year just ended. Trade receivables are fully collectable within 12 months. Note 18 - Other current assets This item breaks down as follows: ( ) 31 December December 2014 Increase/ (Decrease) Due from related parties 1,358,029 1,298,172 59,857 Other 212, ,471 (336,919) Total 1,570,581 1,847,643 (277,062) Other current assets due from related parties primarily regard amounts due from Flycell Italia Srl as a result of participation in the tax consolidation arrangement, amounts due from Flycell Italia Srl and Acotel SpA as a result of Group VAT, and amounts charged to Acotel SpA, AEM Acotel Engineering and Manufacturing SpA, Noverca Srl and Noverca Italia Srl (in liquidation) for their respective portions of general, administrative and staff costs that are incurred on their behalf by Acotel Group SpA. The item Other under Other current assets primarily regards tax assets and prepayments to suppliers for services to be provided to the Company in the following year. Disclosures regarding related party transactions are provided in section 7.14 of the notes. To complete the disclosures required by the Italian Civil Code, it should be noted that all receivables classified in current assets in the statement of financial position at 31 December 2015 are due from Italian debtors, with the exception of the intercompany items described in section

128 Note 19 Financial receivables Financial receivables due from related parties, totalling 1,175 thousand, regard short-term loans granted to Noverca Italia Srl (in liquidation) ( 1,102 thousand) and Acotel Espana ( 73 thousand). Interest is charged on these loans at a capitalised annual rate indexed to 6-month LIBOR plus a spread of 0.5 percentage points. With regard to the loan to Noverca Italia Srl (in liquidation), the Company has made provision (Note 24 to these financial statements) to cover the charges that it may incur at the end of the liquidation of Noverca Italia Srl. The liquidator expects this process to be completed within the next 12 months. Disclosures regarding related party transactions are provided in section 7.14 of the notes. Note 20 Current financial assets Current financial assets, amounting to 3,594 thousand, include: ( ) 31 December December 2014 Increase/ (Decrease) Assets held for trading 1,993,705 4,931,419 (2,937,714) Loans and receivables 1,600,000 1,600,000 - Total 3,593,705 6,531,419 (2,937,714) At 31 December 2015, assets held for trading regard the Private Select portfolio managed by UniCredit SpA and subscribed by Acotel Group SpA ( 1,994 thousand); this fund, which is exposed to limited risk, invests in money market instruments and bonds. Loans and receivables, totalling 1,600 thousand, refer to a fiduciary deposit held by Cordusio società fiduciaria per azioni. This deposit, provided for in the contract for the sale of the 100% interest in Jinny Software Ltd, is an escrow account to be held for 12 months until the current administrative and accounting due diligence process has been completed and to guarantee fulfilment of the seller s other contractual obligations. The following table shows a comparison between the carrying amount and fair value of financial instruments at 31 December 2015: ( ) Carrying amount Fair value Current financial assets: Assets held for trading 1,883,217 1,993,705 Loans and receivables 1,600,000 1,600,000 Total 3,483,217 3,593,705 The following table shows a summary of financial instruments, other than cash and cash equivalents, held by the Company at 31 December 2015: 124

129 ( ) Loans and receivables Assets held for trading Fair value through profit or loss Fair value through other comprehensive income Current financial assets: Other financial assets 1,600, Investment funds - 1,993, ,999 - Financial receivables 1,174, Trade and other receivables 2,127, Total 4,902,254 1,993, ,999 - Current financial liabilities: Borrowings 2,022, Trade and other payables 12,711, Total 14,733, The financial instruments listed in the column Fair value through profit or loss are financial assets resulting from the short-term investment of liquidity. Note 21 - Cash and cash equivalents This item comprises bank deposits of 1,247 thousand and cash and notes in hand of 2 thousand. At the end of last year these items amounted to 178 thousand and 1 thousand, respectively LIABILITIES AND EQUITY EQUITY Note 22 - Equity The statement of changes in equity during the year is included in the financial statements. At 31 December 2015, the fully paid-up share capital of Acotel Group SpA consists of 4,170,000 ordinary shares with a par value of 0.26 each. The Company s objectives in managing its capital essentially relate to the need to support and develop its business activities, in the belief that this will result in the creation of value for shareholders as a whole and, more in general, safeguard the interests of stakeholders. The share premium reserve amounts to 38,899 thousand and derives mainly from capital increases carried out in preparation for the Company s stock market flotation. At 31 December 2015, treasury shares were recorded as a reduction of consolidated equity, totalling 871 thousand. These shares have a par value of 14,671, representing 1.35% of the share capital. This refers to 56,425 Acotel Group SpA ordinary shares, of which 28,320 were acquired in execution of the authority granted by the General Meeting of 24 April 2002 and 28,105, net of sales to date, in execution of the authority granted by the General Meeting of 30 April These shares are accounted for at cost and have an average purchase price, calculated using the LIFO method, of At 31 December 2015, the share price stood at

130 Other Group companies do not possess Acotel Group SpA shares, either directly or through fiduciary companies or proxies, nor have they acquired or sold shares during the period. At 31 December 2015, Acotel Group SpA does not possess shares or units of holding companies, either directly or through fiduciary companies or proxies, nor has it acquired or sold such shares or units during the period. Other reserves, totalling thousand, break down as follows: ( 000) 31 December December 2014 Increase/ (Decrease) Legal reserve Profit on sale of treasury shares - 4,522 (4,522) Other (473) (500) 27 Total (256) 4,239 (4,495) In addition to the notes regarding equity, the following should be noted: ( 000) Share capital 1,084 Capital reserves: Nature/description Amount Potential use to cover losses Share premium reserve 38,899 A, B, C 38,899 16,207 - Revenue reserves: Legal reserve 217 B Other reserves - A, B, C - 9,219 - Retained earnings - A, B, C - 8,714 - Total 38,899 Undistributable portion - Residual distributable portion 38,899 Key: A: to increase capital B: to cover losses C: to pay dividends Available portion Summary of uses in the last three years for other reasons Note 23 Provisions for staff termination benefits The total balance includes amounts due to employees as staff termination benefits, calculated using the actuarial method discussed in the above section on accounting policies and further explained below, less any advances paid. 126

131 Changes during the year are shown below. ( ) 31 December December 2014 Opening balance 737, ,740 Provisions 78,215 86,864 Finance costs 13,302 20,928 Transfer of provisions from Group companies 68,108 12,220 Uses (50,368) (179,856) Adjustment for IAS 19 (revised) (36,638) 78,370 Various withholding taxes (12,934) (15,331) Closing balance 797, ,935 Details of actuarial gains/(losses) recognised on defined-benefit plans in 2015, as accounted for in other consolidated comprehensive income and permanently excluded from profit or loss: ( 000) Gains/(Losses) from change in discount rate 32,811 (103,170) Gains/(Losses) from experience adjustments 3,827 24,800 36,638 (78,370) Provisions for staff termination benefits shown in the financial statements are calculated by an independent actuary. In application of IAS 19, the Projected Unit Credit Method, based on the following stages, was used to measure staff termination benefits: a projection, for each person employed at the date of measurement, of the staff termination benefits already provided for and future staff termination benefits accruing up to the projected time of payment; determination, for each employee, of probable payments of staff termination benefits that the Company will be obliged to make in the case of the employee leaving due to dismissal, resignation, disability, death or retirement, or on request for an advance; discounting, at the measurement date, each likely payment; re-proportioning, for each employee, the likely and discounted calculations based on seniority at the measurement date with respect to the corresponding projected time of payment. Details of the financial assumptions adopted are as follows: 127

132 Financial assumptions December 2015 Annual discount rate 2.03% Annual inflation rate 1.92% Annual rate of salary increase Managers 2.50%; Supervisors/Whitecollar/Blue-collar 1.00% The Company has a defined-benefit pension plan in Italy. IAS19 (revised) has been applied retrospectively from 1 January As a result, the expected return on the defined-benefit plan assets is not accounted for in profit or loss. Interest on the net defined-benefit plan liability (net of plan assets) is, in contrast, accounted for in profit or loss. Interest is calculated using the discount rate applied in measuring the net pension plan liability or asset. In addition, unvested past service costs cannot any longer be deferred over the period until the benefits become vested. Past service costs are, in contrast, recognised fully in profit or loss at the earlier of the date on which the plan is changed or the date on which the related restructuring costs or termination benefits are recognised. Until 2012 unvested past service costs were accounted for on a straight-line basis over the average period until the benefits become vested. Following adoption of IAS 19 (revised), past service costs are accounted for immediately in profit or loss if the benefits vest immediately with the introduction of, or changes to, the pension plan. In the case of post-employment defined-benefit plans, IAS19 (revised) requires a series of disclosures: the results of a sensitivity analysis of each significant actuarial assumption at the end of the year, showing the effects of reasonably possible changes in actuarial assumptions at that date, in absolute terms; an indication of the contribution payable for the following year; an indication of the average duration of the obligation; expected future payments under the plan. This information is provided below: ( ) Sensitivity analysis of measurement assumptions, service costs, expected payments and average duration of the plan Inflation rate Inflation rate Discount rate Discount rate Turnover rate Service costs Expected payments Plan duration +0.25% -0.25% +0.25% -0.25% +1% (years) 859, , , , ,640 78,518 84, Note 24 Provisions This item includes 323 thousand accounted for in non-current liabilities and 9,249 thousand in current liabilities. The non-current portion represents the tax benefit used by the consolidating entity, Acotel Group SpA, following the transfer of the tax losses incurred in 2010 and 2011 by Noverca Srl, a 128

133 participant in the tax consolidation arrangement. This benefit will be recognised by the above company in the years in which it produces taxable income and until the losses transferred have been used. The provisions classified as current include 8,920 thousand in provisions for future charges that the Company may incur following completion of the process of liquidating Noverca Italia Srl (in liquidation), and 329 thousand regarding estimated potential liabilities deriving from commitments assumed. Changes in provisions during 2015 are shown below: ( ) 31 December 2014 Increases Reductions 31 December 2015 Non-current liabilities: Provisions 322, ,770 Current liabilities: Provisions - related parties 11,054,172 18,841 (2,153,429) 8,919,584 Provisions - other - 329, ,153 CURRENT LIABILITIES Note 25 Current borrowings Current borrowings due to related parties, totalling 2,022 thousand ( 2,010 thousand at 31 December 2014), regard short-term loans received from Flycell Italia Srl. Interest is charged on these loans at a capitalised annual rate indexed to 6-month LIBOR plus 0.5 percentage points. Disclosures regarding related party transactions are provided in section 7.14 of the notes. Note 26 - Trade payables This item, which amounts to 628 thousand, compared with 896 thousand at 31 December 2014, is entirely made up of trade payables falling due within 12 months. Note 27 - Tax liabilities This item breaks down as follows: ( ) 31 December December 2014 Increase/ (Decrease) VAT payable 240, ,999 Substitute tax payable 105,229 88,099 17,130 Total 346,228 88, ,

134 The item includes VAT payable by the Company and withholding taxes due from employees and consultants in the form of substitute tax. It should be noted that the Company is not in dispute with the tax authorities. Note 28 Other current liabilities This item breaks down as follows: ( ) Increase/ 31 December December 2014 (Decrease) Due to related parties 10,867,793 10,722, ,091 Other 869,580 1,009,038 (139,458) Total 11,737,373 11,731,740 5,633 Other current liabilities due to related parties include an amount of 8,780 thousand due to Acotel SpA as unpaid called-up share capital, following the capital increase approved by the subsidiary in The residual portion mainly regards charges for sundry services payable to Acotel SpA, Noverca Srl and AEM Acotel Engineering and Manufacturing SpA, tax credits transferred from Acotel SpA and AEM Acotel Engineering and Manufacturing SpA in previous years, and the VAT credit transferred from AEM Acotel Engineering and Manufacturing SpA, Noverca Srl and Noverca Italia Srl (in liquidation). Intercompany transactions are analysed in section 7.14 below. The item Other under Other current liabilities breaks down as follows: ( ) 31 December December 2014 Increase/ (Decrease) Due to employees 362, ,104 (25,256) Due to pension funds and social security institutions 168, ,325 16,049 Due to Directors 143, ,110 (74,921) Other payables 195, ,499 (55,330) Total 869,580 1,009,038 (139,458) Amounts due to employees mainly refer to pay, bonuses and holiday pay due. Amounts due to pension funds and social security institutions include social security and insurance contributions to be paid on wages and remuneration paid to employees and consultants. Amounts due to Directors refer to accrued but as yet unpaid remuneration. 130

135 7.9 NET FUNDS ( ) 31 December December 2014 Increase/ (Decrease) A. Cash and cash equivalents 1,248, ,738 1,069,873 B. Assets held for trading 1,993,705 4,931,419 (2,937,714) C. Liquidity (A + B) 3,242,316 5,110,157 (1,867,841) D. Current financial receivables due from related parties (*) 1,174, , ,375 E. Other current financial receivables 1,600,000 1,600,000 - F. Current financial receivables (D+E) 2,774,602 2,532, ,375 G. Current borrowings from related parties (2,022,082) (2,010,050) (12,032) H. Current net debt (G) (2,022,082) (2,010,050) (12,032) I. Net funds (C + F + H) 3,994,836 5,632,334 (1,637,498) - receivable from related parties (847,480) (1,077,823) 230,343 - receivable from others 4,842,316 6,710,157 (1,867,841) (*): Includes the financial receivable due from Noverca Italian Srl (in liquidation) (Note 19 in the financial statements). Net funds at 31 December 2015, amounting to 3,995 thousand, are down 29% on the figure for the end of Net funds or net debt, as defined by the CONSOB Ruling of 28 July 2006, represents an alternative performance indicator. At 31 December 2015, Other current financial receivables of 1,600 thousand are partially offset by provisions of 329 thousand, as described in Note 24 to these financial statements ADDITIONAL DISCLOSURES ON FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT Classes of financial instrument The following table shows the breakdown of financial assets and liabilities required by IFRS7 and IFRS 13 within the context of the categories provided for by IAS 39: 131

136 ( ) ITEM Assets at FV through profit or loss held for trading 31 December 2015 Loans and receivables Available-forsale financial assets Carrying amount Note NON-CURRENT ASSETS Other non-current assets Guarantee deposits - 3,281-3,281 CURRENT ASSETS Trade receivables Due from related parties - 511, , Other 45,548 45, Financial receivables Due from related parties - 1,174,602-1,174, Current financial assets Cash and cash equivalents Escrow accounts Bank deposits - - 1,600,000 1,247, ,600,000 1,247, Other financial assets Cash and notes in hand 1,993, , ,993,705 1, TOTAL ASSETS 1,993,705 4,583,565-6,577,270 ( ) ITEM Assets at FV through profit or loss held for trading 31 December 2014 Loans and receivables Available-forsale financial assets Carrying amount Note NON-CURRENT ASSETS Other non-current assets Guarantee deposits - 3,384-3,384 CURRENT ASSETS Trade receivables Due from related parties - 793, , Other - 28,195-28, Financial receivables Due from related parties - 932, , Current financial assets Cash and cash equivalents Escrow accounts Bank deposits - - 1,600, , ,600, , Other financial assets Cash and notes in hand 4,931, , ,931,419 1, TOTAL ASSETS 4,931,419 3,535,724-8,467,143 ( ) ITEM 31 December 2015 Liabilities at amortised cost Carrying amount CURRENT LIABILITIES Financial liabilities Due to related parties 2,022,082 2,022, Trade payables Suppliers 627, , TOTAL LIABILITIES 2,650,028 2,650,028 Note 132

137 ( ) ITEM 31 December 2014 Liabilities at amortised cost Carrying amount CURRENT LIABILITIES Financial liabilities Due to related parties 2,010,050 2,010, Trade payables Suppliers 896, , TOTAL LIABILITIES 2,906,400 2,906,400 Note Fair value hierarchy IFRS 13 requires that financial instruments recognised at fair value in the statement of financial position be classified with reference to a hierarchy of levels, based on the significance of the input used to determine fair value. The standard has introduced the following levels: Level 1 quoted prices in active markets for the asset to be measured; Level 2 inputs other than quoted prices included in Level 1 that are observable for the asset, either directly (as prices) or indirectly (derived from prices); Level 3 inputs for the asset that are not based on observable market data. In Acotel Group SpA s financial statements, assets measured at fair value are held for trading. At 31 December 2015, these assets, amounting to 1,994 thousand, are entirely classified as Level 1. Types of financial risk and related hedges As stated in the section of the Directors report on operations dealing with financial risk management, the Company is not exposed to significant financial risks, even though it constantly monitors such risks in order to anticipate any potential negative impact. This section provides qualitative and quantitative disclosures regarding Acotel Group SpA s exposure to these risks. Credit risk The receivables reported in the Company s financial statements are not exposed to significant credit risk. Acotel Group SpA s maximum potential exposure to credit risk at 31 December 2015 relates almost entirely to amounts due from subsidiaries. Trade receivables due from subsidiaries and others have the following maturities. 98.3% of these receivables had yet to mature at 31 December 2015: 133

138 ( 000) Net trade receivables due from subsidiaries Not due Fallen due within last: Total over days days days year days days 31 December December Liquidity risk Liquidity risk occurs when there are difficulties in obtaining the necessary funding for the business at acceptable financial conditions. As shown in the previous tables regarding financial assets and liabilities, the Company makes only limited use of external sources of funds, as it is able to meet its cash requirements from operating cash flow. Trade payables mature in Foreign exchange risk The Company is not exposed to any significant extent to foreign exchange risk, as it does not report foreign currency receivables or payables due from or to third parties. Interest rate risk As the Company does not rely on external sources of funds, it is only exposed to the interest rate risk associated with the loans granted to and by investee companies. A hypothetical movement of ±1% in the interest rates applicable to the loans provided to investee companies at 31 December 2015, after deducting those received at the same date, would have an impact on the income statement equal to approximately ± 6 thousand LITIGATION AND CONTINGENCIES The Board of Directors, having obtained the advice of their legal experts, considers that there are no liabilities for which it is necessary that Acotel Group SpA make provision COMMITMENTS The guarantees granted by Acotel Group SpA, amounting to 7,128 thousand, regard a surety granted by the Company to guarantee its share (59.4%) of the overdraft facility of up to 12,000 thousand granted to Noverca Italia Srl (in liquidation) by Intesa Sanpaolo SpA. At 31 December 2015, drawdowns on this facility amount to 5,965 thousand. 134

139 7.13 COMPLIANCE WITH LEGISLATIVE DECREE 196/2003 The Company has complied with the provisions of Legislative Decree 196/2003 regarding Data Protection, and has prepared and updated the Data Protection Planning Document RELATED PARTY TRANSACTIONS The related party transactions reported in the financial statements of Acotel Group SpA regard transactions entered into with direct or indirect subsidiaries. The impact of these transactions on items in the financial statements is as follows: ( ) Total items in Related parties financial statements Amount % Impact of related party transactions or positions on items in statement of financial position Investments 39,990,497 39,990, % Trade receivables 557, , % Other current assets 1,570,581 1,358, % Financial receivables 1,174,602 1,174, % Provisions 9,571,507 9,242, % Borrowings 2,022,082 2,022, % Other current liabilities 11,737,373 10,867, % Impact of related party transactions or positions on items in income statement Revenue 1,366,561 1,343, % Other income 2,257,794 2,199, % External services 1,625,376 16, % Finance income 371,615 8, % Finance costs (49,430) (12,032) 24.3% Impact of related party transactions or positions on cash flows Cash flows from operating activities (2,441,811) (1,558,377) 63.8% Cash flows for investing activities 4,241,017 4,384, % Cash flows for financing activities (3,667,046) (3,667,046) 100.0% Given that they are not material, transactions with other related parties are not reported separately in the financial statements. On 1 January 2011 the specific procedure for related party transactions referred to in the Annual Corporate Governance Report, which is available on the Company s website, come into effect. The Company is committed to guaranteeing financial support for its subsidiaries, Noverca Srl and AEM Acotel Engineering and Manufacturing SpA, at least in the next 12 months. In addition, in 2015, the Parent Company already provided fresh capital for the above subsidiaries, in part through the forgiveness of sundry receivables and in part via cash injections. 135

140 The following section provides the information required by CONSOB regulations. Purchase and sale of investments from Group companies In 2015, no investments were traded between Acotel Group companies. Remuneration of shareholders for membership of corporate bodies Claudio Carnevale earned 278,000 as Chairman and CEO of Acotel Group SpA during Margherita Argenziano earned 28,000 as a Director of Acotel Group SpA. Cristian Carnevale earned 8,000 as a Director of Acotel Group SpA. At 31 December 2015, outstanding amounts due to the above-named Directors total 60,789. Intercompany transactions The following table shows trading and financial transactions between Acotel Group SpA and the following companies in 2015: RELATIONS WITH OTHER GROUP COMPANIES ( ) Company Receivables Payables Costs Revenue Acotel SpA 830,611 10,443,401 7,375 1,640,995 Acotel Espana SL 73, Acotel Interactive Inc. - 3, AEM Acotel Engineering and Manufacturing SpA 420, ,478 4, ,405 Info2cell.com FZ-LLC ,154 Flycell Italia Srl 55,000 2,022,082 12,031 50,000 Info2cell.com FZ-LLC 44, ,606 Noverca Srl 207, ,064 3, ,893 Noverca Italia Srl 1,412,820 57, ,542 Total 3,044,154 12,889,875 28,176 3,551,030 Amounts due from Acotel SpA primarily regard the subsidiary s use of the technology platform in its role as service provider and its share of administrative costs, lease expense and running costs relating to the building used as its headquarters. Amounts due from Acotel Espana SL regard loans disbursed in previous years to fund the company s operations. These financial receivables are subject to interest calculated at the 6-month LIBOR rate plus a spread of 0.5 percentage points. 136

141 Amounts due from AEM Acotel Engineering and Manufacturing SpA represent the company s share of administrative costs, lease expense and running costs relating to the building used as the subsidiary s headquarters and the recovery of costs incurred by the Company on AEM s behalf. Amounts due from Noverca Srl primarily represent the company s share of administrative costs, lease expense and running costs relating to the building used as its headquarters. Amounts due from Noverca Italia Srl (in liquidation) primarily represent the company s share of administrative costs, lease expense and running costs relating to the building used as its headquarters and the loan disbursed to the company. These financial receivables are subject to interest calculated at the 6-month LIBOR rate plus a spread of 0.5 percentage points. The amount payable to Acotel SpA includes 8,779,767 in unpaid called-up share capital deriving from the capital increase carried out by the subsidiary. It also includes 1,379,927 in receivables resulting from participation in the tax consolidation arrangement and a residual amount relating to costs incurred by the subsidiary on behalf of the Company and yet to be repaid. The amount payable to AEM Acotel Engineering and Manufacturing SpA regards the transfer of the tax credit deriving from participation in the tax consolidation arrangement and payable by the Parent Company. The amount payable to Flycell Italia Srl regards the loan received in The debt is subject to interest calculated at the 6-month LIBOR rate plus a spread of 0.5 percentage points. The amount payable to Noverca Srl essentially regards Group VAT. Revenue earned from Acotel SpA include the amount charged in return for the data processing services supplied via the ICT platform, the subsidiary s share of administrative costs, lease expense and building running costs. Revenue earned from AEM Acotel Engineering and Manufacturing SpA primarily regard the subsidiary s share of administrative costs, lease expense and running costs incurred by the Parent Company on its behalf. Revenue earned from Info2cell.com FZ-LLC regards services rendered by personnel from Acotel Group SpA. Revenue earned from Flycell Italia Srl regard administrative services supplied. Revenue earned from Noverca Srl and Noverca Italia Srl (in liquidation) derive primarily from charges for their share of administrative costs, lease expense and running costs relating to the building used as the companies headquarters. Other related party transactions Expenses incurred in 2015 for fees paid to key management personnel totalled approximately 373 thousand, including employee termination benefits of 31 thousand. Such expenses, which do not 137

142 include social security contributions payable by the employer, relate to a key manager who was in office in 2014 and remains so OTHER INFORMATION The parent, Clama Srl, does not carry out management and coordination activities pursuant to art of the Italian Civil Code, as, despite holding sufficient voting rights to submit the majority list for election of the Board of Directors, Acotel Group SpA s Board of Directors is operationally independent. Material non-recurring events and transactions In 2015, Acotel Group SpA sold its 100% interest in the subsidiary, Info2cell.com FZ-LLC, and all its subsidiaries. Positions or transactions deriving from atypical and/or unusual transactions Pursuant to the CONSOB Ruling of 28 July 2006, it should be noted that no transactions deriving from atypical and/or unusual transactions, as defined by the ruling, occurred during Disclosures pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers The following schedule, prepared pursuant to art. 149-duodecies of the CONSOB Regulations for Issuers, shows the fees payable in 2015 for auditing services and other services provided by the Independent Auditors and associates. ( ) Type of service Entity providing the service Fees 2015* Auditing Reconta Ernst & Young SpA 73,797 Total 73,797 *: Fees are shown net of any expenses charged and gross of any index-linked components. 138

143 ANNEXES TO THE PARENT COMPANY S FINANCIAL STATEMENTS 139

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145 ATTESTATION OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS PURSUANT TO ART. 81-TER OF CONSOB REGULATION OF 14 MAY 1999, AS AMENDED 141

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148 REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE ANNUAL GENERAL MEETING OF SHAREHOLDERS 144

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153 REPORT OF THE INDEPENDENT AUDITORS 149

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